TRANSCONTINENTAL REALTY INVESTORS INC, S-4, 1999-01-13

TRANSCONTINENTAL REALTY INVESTORS INC
S-4, 1999-01-13
REAL ESTATE INVESTMENT TRUSTS

Previous: SWISS ARMY BRANDS INC, SC 13G, 1999-01-13

Next: TECHNOLOGY 80 INC, 10QSB, 1999-01-13

<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 13, 1999

REGISTRATION STATEMENT NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

---------------

FORM S-4

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

---------------

TRANSCONTINENTAL REALTY INVESTORS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS GOVERNING INSTRUMENT)

NEVADA 6513 94-656585
(STATE OF (PRIMARY STANDARD (I.R.S. EMPLOYER
INCORPORATION) INDUSTRIAL IDENTIFICATION NO.)
CLASSIFICATION CODE
NUMBER)

10670 NORTH CENTRAL EXPRESSWAY, SUITE 300
DALLAS, TEXAS 75231
(214) 692-4700
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)

ROBERT A. WALDMAN, ESQ.
10670 NORTH CENTRAL EXPRESSWAY, SUITE 300
DALLAS, TEXAS 75231
(214) 692-4700
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)

---------------

COPY TO:
J. GREGORY HOLLOWAY, ESQ.
ANDREWS & KURTH L.L.P.
1717 MAIN STREET, SUITE 3700
DALLAS, TEXAS 75201
(214) 659-4400

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: Assuming
stockholders approve the proposed Incorporation Procedure and Merger, as soon
as practicable after the date of the Special Meeting of Shareholders of
Continental Mortgage and Equity Trust and the Special Meeting of Stockholders
of Transcontinental Realty Investors, Inc.

---------------

If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

CALCULATION OF REGISTRATION FEE
<TABLE>
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE AGGREGATE OFFERING AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock, $0.01 par
value.................... 4,744,254 shares $61,261,537.50 $17,030.71
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
</TABLE>
(1) Pursuant to Rules 457(f) and 457(c) under the Securities Act of 1933, as
amended, and estimated solely for the purpose of calculating the
registration fee, the proposed maximum aggregate offering price is equal to
the market value of the Shares of the Trust to be cancelled in the Merger
and is based upon $15.25, the average of the high and low sales prices of
the Shares of the Trust on the National Association of Securities Dealers
Automated Quotation system on January 8, 1999.

---------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

TRANSCONTINENTAL REALTY INVESTORS, INC.

CONTINENTAL MORTGAGE AND EQUITY TRUST

MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT

The Board of Directors of Transcontinental Realty Investors, Inc. ("TCI")
and the Board of Trustees of Continental Mortgage and Equity Trust (the
"Trust") have agreed on a merger designed to create a more efficient, cost-
effective and profitable company. The combined company will be named
Transcontinental Realty Investors, Inc.

If the merger is completed, shareholders of the Trust will receive 1.181
shares of TCI common stock for each share of beneficial interest in the Trust
that they own. Stockholders of TCI will continue to own their existing shares
after the merger. The shares of common stock of TCI are listed on the New York
Stock Exchange and are traded under the symbol "TCI".

We estimate that approximately 4,744,254 shares of common stock of TCI, par
value $0.01 per share, will be issued to the Trust's shareholders, representing
approximately 55% of the outstanding common stock of TCI after the merger. The
shares of common stock of TCI held by stockholders of TCI prior to the merger
will represent approximately 45% of the outstanding common stock of TCI after
the merger.

The merger cannot be completed unless the stockholders of both entities
approve it. Both TCI and the Trust have scheduled special meetings for its
stockholders to vote on the merger. YOUR VOTE IS VERY IMPORTANT.

Whether or not you plan to attend a meeting, please take the time to vote by
completing and mailing the enclosed proxy card to us. If you sign, date and
mail your proxy card without indicating how you want to vote and you are a
shareholder of the Trust, your proxy will be counted as a vote against the
merger, and if you are a stockholder of TCI, your proxy will be counted as a
vote for the merger. If you fail to return your card, the effect in most cases
will be a vote against the merger.

The dates, times and places of the meetings are as follows:

FOR SHAREHOLDERS OF CONTINENTAL MORTGAGE AND EQUITY TRUST:

, 1999, 10:00 a.m.
Offices of Continental Mortgage and Equity Trust
10670 North Central Expressway, Suite 300
Dallas, Texas

FOR STOCKHOLDERS OF TRANSCONTINENTAL REALTY INVESTORS, INC.:

, 1999, 10:00 a.m.
Offices of Transcontinental Realty Investors, Inc.
10670 North Central Expressway, Suite 300
Dallas, Texas

THIS DOCUMENT PROVIDES YOU WITH DETAILED INFORMATION ABOUT THE PROPOSED
MERGER AND INCORPORATES IMPORTANT BUSINESS AND FINANCIAL INFORMATION ABOUT THE
COMPANIES THAT IS NOT INCLUDED IN OR DELIVERED WITH THIS DOCUMENT. THIS
INFORMATION IS AVAILABLE WITHOUT CHARGE TO YOU UPON WRITTEN OR ORAL REQUEST, BY
WRITING TO THE PRINCIPAL OFFICES LISTED ABOVE OR BY CALLING (214) 692-4800
(INVESTOR RELATIONS). TO OBTAIN TIMELY DELIVERY, YOU MUST REQUEST THE
INFORMATION NO LATER THAN , 1999. IN ADDITION, YOU MAY OBTAIN INFORMATION
ABOUT OUR COMPANIES FROM DOCUMENTS THAT WE HAVE FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION ("SEC").

WE ENCOURAGE YOU TO READ THIS ENTIRE DOCUMENT CAREFULLY, INCLUDING THE RISK
FACTORS BEGINNING ON PAGE .

/s/ Randall M. Paulson
________________________________________________________________________________
Randall M. Paulson
President
Transcontinental Realty Investors, Inc.

/s/ Randall M. Paulson
________________________________________________________________________________
Randall M. Paulson
President
Continental Mortgage and Equity Trust

Neither the Securities and Exchange Commission nor any state securities
regulators has approved or disapproved of the shares of Transcontinental
Realty Investors, Inc. common stock to be issued under this Joint Proxy
Statement/Prospectus or determined if this Joint Proxy Statement/Prospectus
is accurate or adequate. Any representation to the contrary is a criminal
offense.
Joint Proxy Statement/Prospectus dated January , 1999, and first mailed to
stockholders on January , 1999.
<PAGE>

TABLE OF CONTENTS

<TABLE>
<S> <C>
SUMMARY.................................................................... 2
RISK FACTORS............................................................... 15
General; Forward-Looking Statements...................................... 15
Elimination of Certain Protections of the Declaration of Trust........... 15
Certain Anti-Takeover Effects............................................ 16
Consummation of the Merger Could Trigger Defaults........................ 17
Authorization to Issue Preferred Stock................................... 17
Effect of Certain Majority and Super- Majority Voting Provisions of TCI.. 18
Market Price of TCI Common Stock......................................... 19
Tax Risks................................................................ 19
Dilutive Effect of the Incorporation Procedure and the Merger............ 20
Potential Adverse Effects of Combining TCI and the Trust................. 20
Other Potential Conflicts of Interest.................................... 21
GENERAL SHAREHOLDER INFORMATION............................................ 22
Shareholders of the Trust................................................ 22
Stockholders of TCI...................................................... 23
PROPOSED INCORPORATION PROCEDURE AND MERGER................................ 25
Introduction............................................................. 25
Background of the Incorporation Procedure and Merger..................... 25
Overview of Incorporation Procedure and Merger........................... 26
Principal Reasons for the Incorporation Procedure and the Merger;
Recommendations of the Boards........................................... 28
TCI...................................................................... 28
Opinions of Financial Advisors........................................... 34
Possible Negative Considerations......................................... 39
Certain Potential Conflicts of Interest.................................. 40
The Conversion of Shares................................................. 42
Comparison of Principal Differences Between the Trust and TCI............ 42
Management After Incorporation Procedure and Merger...................... 43
Liability of Certain Persons............................................. 48
Business Activities after Incorporation Procedure and Merger............. 51
Comparison of the Securities of TCI and the Trust........................ 56
Stockholder-Management Relations......................................... 60
</TABLE>
<TABLE>
<S> <C>
Establishment of Subsidiaries........................................... 65
Amendment Provisions.................................................... 65
Material Federal Income Tax Consequences................................ 66
Certain Foreign, State and Local Taxes.................................. 68
GENERAL PROVISIONS OF THE MERGER AGREEMENT................................ 68
Conditions to Consummation of the Incorporation Procedure and the
Merger................................................................. 68
No Solicitation......................................................... 69
Termination............................................................. 70
Conduct of the Business Pending the Merger.............................. 70
Amendment and Waiver.................................................... 71
Expenses................................................................ 71
Representations and Warranties.......................................... 71
MARKET PRICES OF THE SHARES; DIVIDENDS; COMPARATIVE PER SHARE MARKET
PRICE.................................................................... 72
BUSINESS AND PROPERTIES OF TCI............................................ 74
General................................................................. 74
Business Plan and Investment Policies................................... 75
TCI Assets.............................................................. 75
Certain Factors Associated with Real Estate and Related Investments..... 92
Method of Operating and Financing....................................... 92
Officers................................................................ 92
The TCI Advisor......................................................... 93
Property Management..................................................... 93
Real Estate Brokerage................................................... 93
The TCI Advisory Agreement.............................................. 94
Involvement in Certain Legal Proceedings................................ 96
Certain Business Relationships and Related Party Transactions........... 97
Security Ownership of Certain Beneficial Owners and Management.......... 99
BUSINESS AND PROPERTIES OF THE TRUST...................................... 100
General................................................................. 100
Business Plan and Investment Policies................................... 100
Trust Assets............................................................ 100
Certain Factors Associated with Real Estate and Related Investments..... 117
Method of Operating and Financing....................................... 117
Officers................................................................ 118
The Trust Advisor....................................................... 118
</TABLE>
<PAGE>

<TABLE>
<S> <C>
Property Management..................................................... 119
Real Estate Brokerage................................................... 119
The Trust Advisory Agreement............................................ 119
Involvement in Certain Legal Proceedings................................ 121
Certain Business Relationships and Related Party Transactions........... 121
Security Ownership of Certain Beneficial Owners And Management.......... 122
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION.................... 123
TRUST MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................... 128
Introduction............................................................ 128
Liquidity and Capital Resources......................................... 128
Results of Operations................................................... 130
Environmental Matters................................................... 134
Inflation............................................................... 135
Tax Matters............................................................. 135
Year 2000............................................................... 135
TCI MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................... 136
Introduction............................................................ 136
</TABLE>
<TABLE>
<S> <C>
Liquidity and Capital Resources........................................... 136
Results of Operations..................................................... 138
Environmental Matters..................................................... 142
Inflation................................................................. 142
Tax Matters............................................................... 142
Year 2000................................................................. 142
LEGAL MATTERS............................................................... 144
EXPERTS..................................................................... 144
AVAILABLE INFORMATION....................................................... 144
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................. 144
SOLICITATION OF PROXIES..................................................... 146
SOLICITATION OF PROXIES..................................................... 147
</TABLE>

<TABLE>
<S> <C>
Appendix A: Index of Principal Defined Terms A-1
Appendix B: Agreement and Plan of Merger B-1
Appendix C: Fairness Opinion of Wedbush
Morgan Securities C-1
Appendix D: Fairness Opinion of Sutro & Co. D-1
</TABLE>
<PAGE>

QUESTIONS AND ANSWERS ABOUT THE MERGER

Q: WHY ARE THE TWO COMPANIES PROPOSING TO MERGE? HOW WILL I BENEFIT?

A: This merger means that you will have a stake in a company that expects to
have greater access to capital and lower operating costs than either had prior
to the merger. Both TCI and the Trust are real estate investment trusts
investing in real estate, real estate partnerships and mortgage loans on real
estate. By merging the businesses of both companies, the combined company will
be better positioned to attract capital and will benefit from the economies of
scale which will result from operating as a single company.

Q: WHAT DO I NEED TO DO NOW?

A: Just mail your signed proxy card in the enclosed return envelope as soon as
possible, so that your shares may be represented at the special meetings. The
Transcontinental Realty Investors, Inc. meeting will take place on , 1999.
The Continental Mortgage and Equity Trust meeting will take place on ,
1999. The Board of Directors of TCI and the Board of Trustees of the Trust
unanimously recommend voting in favor of the proposed merger.

Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?

A: No. After the merger is completed, we will send shareholders of the Trust
written instructions for exchanging their share certificates. Shareholders of
the Trust should not return their share certificates at this time. The
stockholders of TCI will keep their certificates.

Q: PLEASE EXPLAIN THE EXCHANGE RATIO.

A: The total number of shares of TCI common stock to be distributed to
shareholders of the Trust was determined in conjunction with the opinions
rendered by the financial advisors hired by both TCI and the Trust to evaluate
the companies. Shareholders of the Trust will receive 1.181 shares of TCI
common stock for each Trust share. We will not issue fractional shares.
Shareholders of the Trust who would otherwise be entitled to receive a
fractional share instead will receive cash based on the market value of the
fractional share of TCI common stock.

Example: If you currently own 100 shares in the Trust, then after the merger
you will be entitled to receive 118 shares of TCI common stock and a check for
the market value of the .1 fractional share. If you currently own 100 shares of
TCI common stock, then you will continue to hold those 100 shares after the
merger.

Q: WHAT HAPPENS TO MY FUTURE DIVIDENDS?

A: We expect no changes in our current dividend policies prior to the merger.
After the merger, we expect the initial annualized dividend rate to be $0.60
per share of TCI common stock, reflecting our desire to provide you with
competitive dividends. The annualized rate of $0.60 per share is the historic
dividend rate paid to shareholders of the Trust.

Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?

A: We are working to complete the merger as quickly as possible. We hope to
complete the merger by , 1999.

Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO STOCKHOLDERS?

A: The exchange of shares by shareholders of the Trust will be tax-free to
shareholders of the Trust for federal income tax purposes, except for taxes on
cash received for a fractional share. The merger will be tax-free to
stockholders of TCI for federal income tax purposes. To review the tax
consequences in greater detail, see page 66.

Q: WHO CAN HELP ANSWER OTHER QUESTIONS I MAY HAVE REGARDING THE MERGER?

A: If you have more questions about the merger you should contact: Investor
Relations, phone number (214) 692-4800.
- 1 -
<PAGE>

SUMMARY

This summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the
merger fully and for a more complete description of the legal terms of the
merger, you should read carefully this entire document and the documents we
have referred you to. See "Available Information," on page 144.

An index of principal defined terms appears in Appendix A of this document.

THE COMPANIES
(PAGE 74)

TRANSCONTINENTAL REALTY INVESTORS, INC.
10670 North Central Expressway, Suite 300
Dallas, Texas 75231
(214) 692-4700

Transcontinental Realty Investors, Inc. is a real estate investment trust,
or "REIT", that invests in (1) real estate, (2) real estate partnerships and
(3) mortgage loans on real estate.

CONTINENTAL MORTGAGE AND EQUITY TRUST
10670 North Central Expressway, Suite 300
Dallas, Texas 75231
(214) 692-4700

Continental Mortgage and Equity Trust is a REIT that also invests in (1)
real estate, (2) real estate partnerships and (3) mortgage loans on real
estate.

CONTINENTAL MORTGAGE AND EQUITY CORPORATION
10670 North Central Expressway, Suite 300
Dallas, Texas 75231
(214) 692-4700

Continental Mortgage and Equity Corporation ("CME Corporation") will be the
successor in interest to the Trust when the Trust converts into CME Corporation
immediately prior to the merger of CME Corporation and TCI. At the time of the
merger, CME Corporation will have conducted no business other than in
connection with the Agreement and Plan of Merger (the "Merger Agreement")
between TCI and the Trust. After the merger, CME Corporation will no longer
exist. The conversion of the Trust into CME Corporation is referred to as the
"Incorporation Procedure" and the merger of CME Corporation with TCI is
referred to as the "Merger".

PRINCIPAL REASONS FOR THE MERGER
(PAGE 28)

By combining the companies, we believe that we will be able to increase our
revenues, reduce our costs and attract greater capital for investment. As a
single company, we will build on our common strengths and we expect to provide
our stockholders with added value.

The Trust's Board of Trustees also believes the Merger will be beneficial
because it will be more difficult for the business of TCI to be acquired. In
addition, TCI has greater legal certainty in matters of corporate governance
and indemnification as a corporation than does the Trust as a California
business trust. Also, TCI's status as a Nevada corporation is favorable
because, among other things, the Trust's Board of Trustees believe the laws
that govern TCI will better meet the business needs of the Trust's business
once the Incorporation Procedure and the Merger are completed.

OUR RECOMMENDATIONS TO STOCKHOLDERS
(PAGE 28)

TO TRANSCONTINENTAL REALTY INVESTORS, INC. STOCKHOLDERS:

The Board of Directors of TCI believes that the merger is in your best
interest and unanimously recommends that you vote FOR the proposal to:

(a) approve the Merger and the Merger Agreement; and

(b) to approve the issuance of shares of TCI common stock to shareholders of
the Trust in the Merger.

- 2 -
<PAGE>

TO CONTINENTAL MORTGAGE AND EQUITY TRUST SHAREHOLDERS:

The Board of Trustees of the Trust believes that the Merger is in your best
interest and unanimously recommends that you vote FOR the proposal to:

(a) approve the Incorporation Procedure; and

(b) approve the Merger and the Merger Agreement.

THE INCORPORATION PROCEDURE AND THE MERGER (PAGE 25)

The Merger Agreement is attached as Appendix B to this document. We encourage
you to read carefully the Merger Agreement, which is the legal document that
governs the Incorporation Procedure and the Merger.

General Discussion.

The Incorporation Procedure and the Merger, if approved, will result in a
significant change in the nature of the investment made by shareholders of the
Trust. TCI, like the Trust, has elected to be treated as a REIT, for federal
income tax purposes. However, TCI is not restricted from changing that election
at any time, although at present its Board of Directors has no intention of
doing so.

Other than TCI's present intention of continuing to conduct its business as
a REIT, TCI is not subject to restrictions on its investments except to the
extent any investment activity involves related party transactions. Those
transactions require the approval of a majority of the independent Directors of
TCI.

Procedure.

The Incorporation Procedure and the Merger would be accomplished as follows:

(i) the Trust will convert from a California business trust into a
California corporation, CME Corporation;

(ii) immediately thereafter, CME Corporation will be merged into TCI
pursuant to the Merger Agreement; and

(iii) TCI and CME Corporation will file articles of merger with the
Secretary of State of the State of Nevada and the Secretary of State of the
State of California to effect the Merger.

The Merger Agreement provides for, among other things, (a) the tax-free
merger of CME Corporation with and into TCI such that CME Corporation will
cease to exist and TCI will be the surviving corporation, (b) the conversion of
each share of CME Corporation's common stock then held into 1.181 shares of TCI
common stock, par value $0.01 per share, and (c) the cancellation of all shares
of CME Corporation's common stock then held.

What Shareholders of the Trust will Receive after the Incorporation
Procedure and the Merger.

As a result of the Incorporation Procedure and the Merger, each shareholder
of the Trust will receive 1.181 shares of TCI's common stock for each share of
beneficial interest of the Trust held by the shareholder, except that TCI will
pay cash for fractional shares that it would otherwise issue. The shareholders
of the Trust will become shareholders of TCI, holding, in the aggregate,
approximately 55% of all of the issued and outstanding shares of TCI common
stock.

Ownership of TCI Following the Merger.

We anticipate that TCI will issue approximately 4,744,254 shares of TCI
common stock to shareholders of the Trust in the Merger. The shares of TCI
common stock issued to shareholders of the Trust in the Merger will constitute
approximately 55% of the outstanding shares of common stock of TCI after the
Merger.

The Board of Directors and Management of TCI Following the Merger.

The current members of the TCI Board of Directors and its management are the
same as the current members of the Board of Trustees of the Trust and the
Trust's management. If the Merger is completed, the Board of Directors and
management of TCI will remain the same.

- 3 -
<PAGE>

Surrender of Trust Share Certificates.

Although shareholders of the Trust will be required to surrender their Trust
share certificates in exchange for TCI common stock certificates if the
Incorporation Procedure and the Merger are approved, shareholders of the Trust
should not return their Trust share certificates with their proxies at this
time.

RISK FACTORS
(PAGE 15)

In evaluating the proposed Merger, shareholders of the Trust and
stockholders of TCI should consider, among other things, risk factors such as:

(1) TCI is not subject to the Trust's charter provisions that require (a) a
limit on annual operating expenses and (b) stockholder approval of renewals of
advisory agreements;

(2) The acquisition safeguards provided by the Nevada corporate structure of
TCI could discourage future attempts to acquire TCI;

(3) The Merger could trigger events of default under certain mortgage loans
held by TCI and the Trust, requiring that the companies obtain consents from
certain lenders or, alternatively, refinance or repay the mortgage loans before
or after finalization of the Merger;

(4) The ability of TCI to issue preferred stock could, in the future,
discourage parties from acquiring TCI and/or dilute the ownership of TCI
stockholders;

(5) Following the Merger, the Board of Directors of TCI, executive officers
of TCI and entities they are affiliated with, including Basic Capital
Management, Inc. ("BCM"), will collectively own a majority of the outstanding
shares of TCI. Even if such holdings were reduced below 50%, those entities
would still be able to, effectively, veto certain corporate actions of TCI due
to the existence of certain super-majority voting provisions in the charter of
TCI;

(6) The Board of Directors of TCI have greater discretion than the Board of
Trustees of the Trust with respect to transactions with related parties and,
accordingly, TCI could engage in more related party transactions than the Trust
currently is allowed;

(7) There can be no assurance that the market price of the common stock of
TCI after the Merger will be equal to that of such shares prior to the Merger;

(8) The charter documents of TCI do not require that TCI be qualified as a
REIT. In the future, the Board of Directors of TCI could elect not to have TCI
qualify as a REIT, resulting in TCI being taxed as a corporation for federal
income tax purposes. If that were to occur, the amount of cash available for
distributions to stockholders of TCI could be reduced, among other things;

(9) The Merger may adversely affect holders of shares of TCI common stock
prior to the Merger by possibly resulting in a dilutive effect on net income
per share in the future and on the voting rights of those holders;

(10) There can be no assurance that costs or other factors associated with
the merger of TCI and the Trust would not adversely affect future combined
results of operations or the benefits of expected costs savings; and

(11) The executive officers and Trustees of the Trust (as well as the
executive officers and Directors of TCI), as representatives of other real
estate-related companies (including other affiliates of BCM), may be subject to
certain conflicts of interests in selling and buying properties for TCI.

GENERAL STOCKHOLDER INFORMATION
(PAGE 22)

General.

The Trust is a California business trust that invests in real estate,
mortgage loans and equity interests in real estate. TCI is a Nevada corporation
that invests in real estate, mortgage loans and equity interests in real
estate. The principal executive offices of the Trust and TCI are located at
10670 North Central Expressway, Suite 300, Dallas, Texas 75231, telephone
number (214) 692-4700.

Special Meetings; Voting; Dissenters' Rights.

A special meeting of the Trust's shareholders will be held at 10:00 a.m.,
Dallas time, on
- 4 -
<PAGE>

, 1999, at 10670 North Central Expressway, Suite 300, Dallas, Texas 75231. At
the Trust special meeting, shareholders will be asked to consider and vote upon
the proposed Incorporation Procedure and the Merger. Only holders of record of
issued and outstanding shares of beneficial interest of the Trust at the close
of business on the record date, , 1999, will be entitled to vote at the
Trust special meeting.

As of November 30, 1998, there were 4,017,150 Trust shares outstanding and
entitled to one vote each. The affirmative vote of the holders of a majority of
the outstanding Trust shares (i.e., at least 2,008,576 Trust shares) will be
required to approve the proposed Incorporation Procedure and the Merger.
Shareholders of the Trust will not have any dissenters' rights of appraisal
with respect to the Incorporation Procedure and the Merger except under limited
circumstances.

A special meeting of TCI's stockholders will be held at 10:00 a.m., Dallas
time, on , 1999, at 10670 North Central Expressway, Suite 300, Dallas,
Texas 75231. At the TCI special meeting, stockholders will be asked to consider
and vote upon the proposed Merger and the issuance of TCI common stock. Only
holders of record of issued and outstanding shares of TCI common stock at the
close of business on the record date, , 1999, will be entitled to vote at
the TCI special meeting.

As of November 30, 1998, there were 3,875,944 shares of TCI common stock
outstanding and entitled to one vote each. The affirmative vote of the holders
of 66 2/3% of the outstanding shares of TCI common stock (i.e., at least
2,583,963 shares of TCI common stock) will be required to approve the proposed
Merger. Stockholders of TCI will not have any dissenters' rights of appraisal
with respect to the Merger.

BUSINESS ACTIVITIES AFTER INCORPORATION
PROCEDURE AND MERGER
(PAGE 43)

The Incorporation Procedure and the Merger will not significantly change the
nature or conduct of the Trust's business as merged with TCI, or its assets,
operations, location of executive office, liabilities, financial status, except
to the extent TCI may issue preferred stock in the future. The affairs and the
rights of stockholders of TCI are governed by Nevada corporate law and articles
of incorporation and bylaws rather than by California law and the Declaration
of Trust and the Trustees' Regulations.

In addition, the Declaration of Trust includes certain restrictions on the
investment activities of the Trust. The governing documents of TCI provide for
no restrictions on the investment activities of TCI.

MATERIAL FEDERAL INCOME TAX CONSEQUENCES
(PAGE 66)

We have structured the Incorporation Procedure and the Merger so that
neither the Trust, TCI nor any stockholders or shareholders will recognize any
gain or loss for federal income tax purposes in connection with the
Incorporation Procedure and the Merger (except for tax payable because of cash
received instead of fractional shares by the Trust shareholders). We have
conditioned the Incorporation Procedure and the Merger on our receipt of legal
opinions that such is the case.

Stockholders should note, however, that even if we receive the legal
opinions outlined above, those opinions are not binding on the Internal Revenue
Service or the courts.

ALL STOCKHOLDERS SHOULD CAREFULLY READ THE DISCUSSION UNDER "PROPOSED
INCORPORATION PROCEDURE AND MERGER -- MATERIAL FEDERAL INCOME TAX CONSEQUENCES"
AND SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE EFFECT OF THE INCORPORATION
PROCEDURE AND THE MERGER ON THEIR INDIVIDUAL TAX LIABILITY UNDER APPLICABLE
U.S. FEDERAL, FOREIGN, STATE OR LOCAL INCOME TAX LAWS.

MARKET PRICES OF THE SHARES; DIVIDENDS
(PAGE 72)

The shares of the Trust are traded on the NASDAQ Stock Market ("NASDAQ")
using the symbol "CMETS". As of the close of business on November 30, 1998,
there were 4,017,150 Trust shares outstanding. The range of high and low bid
- 5 -
<PAGE>

quotations per Trust share as reported by NASDAQ: (i) during the nine months
ending September 30, 1998, were $23.00 and $14.75, respectively, (ii) during
the 1997 fiscal year were $21.50 and $11.00, respectively, (iii) during the
1996 fiscal year were $12.25 and $9.625, respectively, and (iv) during the 1995
fiscal year were $10.6875 and $9.6875, respectively (as restated for the three-
for-two forward share split effected February 15, 1996, as applicable).
Distributions on the Trust shares are declared and paid quarterly.

The shares of TCI common stock are traded on the New York Stock Exchange
("NYSE") using the symbol "TCI". As of the close of business on November 30,
1998, there were 3,875,944 shares of TCI common stock outstanding. The range of
high and low bid quotations per share of TCI common stock as reported on the
NYSE: (i) during the nine months ending September 30, 1998, were $18.25 and
$12.50, respectively, (ii) during the 1997 fiscal year were $21.375 and $10.75,
respectively, (iv) during the 1996 fiscal year were $11.50 and $9.25,
respectively, and (iii) during the 1995 fiscal year were $11.00 and $9.625,
respectively (as restated for the three-for-two forward common stock split
effected February 15, 1996, as applicable). Distributions on the shares of TCI
common stock are declared and paid quarterly.
- 6 -
<PAGE>

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
OF TCI AND THE TRUST

The following unaudited pro forma combined financial information of TCI and
the Trust presents the historical consolidated balance sheets and statements of
operations of TCI and the Trust after giving effect to the Merger. The
unaudited pro forma combined balance sheet data at September 30, 1998 gives
effect to the Merger as if it had occurred on September 30, 1998. The unaudited
pro forma combined statements of operations for the nine months ended September
30, 1998 and the fiscal year ended December 31, 1997 gives effect to the Merger
as if it had occurred on January 1, 1997. These statements have been prepared
on the basis of accounting for the Merger as a purchase and are based on the
assumptions set forth in the notes thereto.

The following unaudited pro forma combined financial information has been
prepared from, and should be read in conjunction with, the consolidated
financial statements and related notes thereto of TCI and the consolidated
financial statements and related notes thereto of the Trust, both of which are
incorporated by reference in this Joint Proxy Statement/Prospectus. The
following information is not necessarily indicative of the financial position
or operating results that would have occurred had the Merger been consummated
on the date as of which, or at the beginning of the periods for which, the
Merger is being given effect, nor is it necessarily indicative of future
operating results or financial position.

UNAUDITED PRO FORMA COMBINED BALANCE SHEET

<TABLE>
<CAPTION>
HISTORICAL
---------------------- PROFORMA PROFORMA
ASSETS TCI TRUST ADJUSTMENTS COMBINED
------ ---------- ---------- -------------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
<S> <C> <C> <C> <C>
Notes and interest
receivable $ 2,416 $ 4,899 $ 7,315
Less - allowance for
estimated losses (891) (1,456) (2,347)
---------- ---------- ----------
1,525 3,443 4,968
Foreclosed real estate
held for sale, net of
accumulated depreciation 3,867 5,022 8,889
Real estate under con-
tract for sale, net of
accumulated depreciation 6,524 - 6,524
Real estate held for
investment, net of
accumulated depreciation 309,039 288,814 $(25,047)(B) 572,806
Investment in real estate
entities 3,877 - 3,877
Investment in marketable
securities of
affiliates, at market - 13,571 (1,054)(C) 12,517
Cash and cash equivalents 19,657 4,397 24,054
Other assets 15,614 15,778 31,392
---------- ---------- ---------- ----------
$ 360,103 $ 331,025 $ (26,101) $665,027
========== ========== ========== ==========
</TABLE>

- 7 -
<PAGE>

UNAUDITED PROFORMA COMBINED BALANCE SHEET--CONTINUED

SEPTEMBER 30, 1998

<TABLE>
<CAPTION>
HISTORICAL
-------------------- PROFORMA PROFORMA
LIABILITIES AND STOCKHOLDERS' EQUITY TCI TRUST ADJUSTMENTS COMBINED
- ------------------------------------ --------- --------- ----------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
<S> <C> <C> <C> <C>
Liabilities
Notes and interest payable $ 258,782 $ 234,744 $ 493,526
Other liabilities 8,738 8,966 17,704
--------- --------- ----------
267,520 243,710 511,230
Stockholders' Equity
TCI
Common Stock $.01 par value,
authorized 10,000,000 shares;
issued and outstanding
3,889,220 shares 39 ${ (1)(C)} 85
{ 47 (A)}
Paid in capital 217,431 { 62,221 (A)} 278,599
{ (1,053)(C)}
Accumulated distributions in
excess of accumulated
earnings (124,887) (124,887)
Trust
Shares of Beneficial interest,
no par value; authorized
shares unlimited; issued and
outstanding 4,017,150 shares 8,045 (8,045)(A) -
Paid in capital 257,042 (257,042)(A) -
Accumulated distributions in
excess of accumulated
earnings (189,986) 189,986 (A) -
Net unrealized gains on
marketable equity securities
of affiliates 12,214 (12,214)(A) -
--------- --------- --------- ----------
92,583 87,315 (26,101) 153,797
--------- --------- --------- ----------
$ 360,103 $ 331,025 $ (26,101) $ 665,027
========= ========= ========= ==========
</TABLE>

- 8 -
<PAGE>

NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET

SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS)

Note A. To record the purchase price of the Trust at its estimated fair value.
Estimated fair value of 4,744,254 shares of TCI common stock at $13.125 per
share (the closing price on September 30, 1998) issued at the exchange rate of
1.181 share of TCI common stock for each of the 4,017,150 outstanding Trust
shares of beneficial interest or $62,268.

Note B. To record allocation of purchase price to assets and liabilities
acquired as follows:

<TABLE>
<S> <C>
Notes and interest receivable $ 3,443
Foreclosed real estate held for sale 5,022
Real estate held for investment 263,767
Investment in marketable equity securities of affiliates 13,571
Cash and cash equivalents 4,397
Other assets 15,778
Notes and interest payable (234,744)
Other liabilities (8,966)
---------
$ 62,268
=========
</TABLE>

The adjustment to "Real estate held for investment" resulting from the
above allocation is due to the application of purchase accounting, and is not
indicative of the appraised value of such real estate.

Note C. To record retirement of 80,268 shares of TCI common stock included in
the acquired Trust assets at the Trust's carrying value (September 30, 1998
market value) of $1,054.

- 9 -
<PAGE>

UNAUDITED PROFORMA COMBINED STATEMENT OF OPERATIONS FOR

THE NINE MONTHS ENDED SEPTEMBER 30, 1998

<TABLE>
<CAPTION>
HISTORICAL
-------------------- PROFORMA PROFORMA
TCI TRUST ADJUSTMENTS COMBINED
--------- --------- ----------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
<S> <C> <C> <C> <C>
Income
Rent $ 51,414 $ 47,287 $ 98,701
Interest 593 539 $ (36)(C) 1,096
--------- --------- ----- ---------
52,007 47,826 (36) 99,797
Expense
Property operations 27,355 27,421 54,776
Interest 16,865 16,149 33,014
Depreciation 7,882 6,074 (626)(A) 13,330
Advisory fee 1,927 1,838 (188)(B) 3,577
Net income fee 651 58 58 (D) 767
General and administrative 1,649 1,643 3,292
--------- --------- ----- ---------
56,329 53,183 (756) 108,756
(Loss) from operations (4,322) (5,357) 720 (8,959)
Equity in income of investees 342 108 450
Gain on sale of real estate 12,015 5,916 17,931
--------- --------- ----- ---------
Net income $ 8,035 $ 667 $ 720 $ 9,422
========= ========= ===== =========
Earnings per share Net income $ 2.07 $ .17 $ 1.10
========= ========= =========
Weighted average shares used in
computing earnings per share 3,876,505 4,011,072 8,540,491
</TABLE>

- 10 -
<PAGE>

NOTES TO UNAUDITED PROFORMA COMBINED STATEMENT
OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS)

Note A. To adjust depreciation for the $25,047 write down of the acquired real
estate held for investment, amortized over such asset's 30 year estimated
average remaining useful life.

Note B. To adjust the .75% per annum advisory fee for the $25,047 write down of
the acquired real estate held for investment.

Note C. To eliminate the divided income on the 80,268 shares of TCI common
stock acquired with the Trust assets and retired.

Note D. To adjust the 7.5% net income fee for the effects of the items
described in Notes A, B and C above.

- 11 -
<PAGE>

UNAUDITED PROFORMA COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
HISTORICAL
-------------------- PROFORMA PROFORMA
TCI TRUST ADJUSTMENTS COMBINED
--------- --------- ----------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
<S> <C> <C> <C> <C>
Income
Rent $ 54,462 $ 55,180 $ 109,642
Interest 1,499 1,295 $(103)(C) 2,691
--------- --------- ----- ---------
55,961 56,475 (103) 112,333
Expense
Property operations 32,424 32,041 64,465
Interest 16,765 17,142 33,907
Depreciation 9,578 6,236 (835)(A) 14,979
Advisory fee 1,807 1,496 (188)(B) 3,115
Net income fee 1,022 1,005 69 (D) 2,096
General and administrative 2,645 2,727 5,372
Provision for losses 1,337 -- 1,337
--------- --------- ----- ---------
65,578 60,647 (954) 125,271
(Loss) from operations (9,617) (4,172) 851 (12,938)
Equity in income of investees 812 99 911
Gain on sale of real estate 21,404 8,249 29,653
--------- --------- ----- ---------
Net income $ 12,599 $ 4,176 $ 851 $ 17,626
========= ========= ===== =========
Earnings per share Net income $ 3.22 $ 1.04 $ 2.06
========= ========= =========
Weighted average shares used in
computing earnings per share 3,907,221 4,025,794 8,571,207
========= ========= =========
</TABLE>

- 12 -
<PAGE>

NOTES TO UNAUDITED PROFORMA COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)

Note A. To adjust depreciation for the $25,047 write down of the acquired real
estate held for investment, amortized over such asset's 30 year estimated
average remaining useful life.

Note B. To adjust the .75% per annum advisory fee for the $25,047 write down
of the acquired real estate held for investment.

Note C. To eliminate the dividend income on the 80,268 shares of TCI common
stock acquired with the Trust assets and retired.

Note D. To adjust the 7.5% net income fee for the effects of the items
described in notes A, B and C, above.

COMPARATIVE PER SHARE DATA

We have summarized below the per share information for our respective
companies on a historical, pro forma combined and equivalent basis. The pro
forma information gives effect to the Merger accounted for on a purchase
basis. You should read this information in conjunction with our historical
financial statements (and related notes) contained in the annual reports and
other information that we have filed with the SEC. You should also read this
information in connection with the pro forma financial information set forth
on pages 8 through 14. You should not rely on the pro forma information as
being indicative of the historical results that we would have had or the
future results that we will experience after the Incorporation Procedure and
the Merger.

- 13 -
<PAGE>

TCI COMMON SHARES

<TABLE>
<CAPTION>
HISTORICAL PROFORMA COMBINED
---------- -----------------
<S> <C> <C>
Income per Common Share
Nine months ended September 30, 1998 $ 2.07 $ 1.10
Year ended December 31, 1997 3.22 2.06
Cash Dividends per Common Share
Nine months ended September 30, 1998 1.45 1.45
Year ended December 31, 1997 .28 .28
Book Value per Common Share
September 30, 1998 23.91 17.98
December 31, 1997 22.25 17.28

TRUST SHARES OF BENEFICIAL INTEREST

<CAPTION>
HISTORICAL PROFORMA COMBINED
---------- -----------------
<S> <C> <C>
Income per Share
Nine months ended September 30, 1998 $ .17 $ 1.10
Year ended December 31, 1997 1.04 2.06
Cash Dividends per Share
Nine months ended September 30, 1998 .45 .53
Year ended December 31, 1997 .52 .61
Book Value per Share
September 30, 1998 21.74 21.23
December 31, 1997 21.89 20.41
</TABLE>

- 14 -
<PAGE>

RISK FACTORS

In addition to the other information contained in this document, you should
consider the following risk factors before you decide whether or not you wish
to approve the Incorporation Procedure and the Merger.

GENERAL; FORWARD-LOOKING STATEMENTS

This document contains forward-looking statements that are subject to risks
and uncertainties. Forward-looking statements include the information
concerning future results of operations, economic benefits of participation in
TCI and expanded business opportunities relating to the Trust after the
Incorporation Procedure and the Merger. These statements are set forth in the
letter to stockholders accompanying this document and under "Summary",
"Proposed Incorporation Procedure and Merger", "Market Prices of the Shares;
Dividends", "Business and Properties of TCI", "Business and Properties of the
Trust", "TCI Management's Discussion and Analysis of Financial Condition and
Results of Operations", and "Trust Management's Discussion and Analysis of
Financial Condition and Results of Operations". These statements are usually
preceded by, followed by or otherwise include the words "believes", "expects",
"anticipates", "intends", "estimates" or similar expressions.

For those statements, TCI and the Trust claim the protection of the safe
harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995. The following important factors, in addition to
those discussed elsewhere in this Joint Proxy Statement/Prospectus and in the
documents which are incorporated by reference, could affect future results.
These factors could cause those results to differ materially from those
expressed in the forward-looking statements:

. the declaration or payment of distributions by TCI;

. the completion of the Incorporation Procedure and the Merger;

. the policies of TCI regarding investments, acquisitions,
dispositions, financings, conflicts of interest and other
matters;

. risks associated with the real estate markets in general;

. the availability of equity and debt financing;

. interest rates;

. general economic conditions;

. trends affecting TCI's financial condition or results of
operations; and

. the risks described below.

You should be aware that forward-looking statements are not guarantees of
future performance and involve risks and uncertainties. Actual results may
differ materially from those in the forward-looking statements as a result of
various factors. The information contained in this document, including the
information set forth below, identifies important facts that could cause such
differences.

ELIMINATION OF CERTAIN PROTECTIONS OF THE DECLARATION OF TRUST

Upon completion of the Incorporation Procedure and the Merger, the Trust
will cease to exist. Consequently, the shareholders of the Trust will no longer
have certain protections of the organizational documents of the Trust since
they will be, at that time, stockholders of TCI. TCI is governed by Articles of
Incorporation and Bylaws containing provisions that are distinct from those
contained in the Declaration of Trust.

- 15 -
<PAGE>

Under certain provisions of the Declaration of Trust, the Operating Expenses
of the Trust (as defined in the Declaration of Trust and discussed more fully
under "Proposed Incorporation Procedure and Merger -- Business Activities
after Incorporation Procedure and Merger") for any fiscal year must not exceed
the lesser of

(a) 1.5% of the average of the Book Values of Invested Assets (as
defined in the Declaration of Trust) of the Trust at the end of
each calendar month of the fiscal year, or

(b) the greater of 1.5% of the average of the Net Asset Value (as
defined in the Declaration of Trust) of the Trust at the end of
each calendar month of such fiscal year or 25% of the Trust's Net
Income (as defined in the Declaration of Trust).

The Declaration of Trust also provides that any advisory agreement must
specifically provide for a refund to the Trust of the amount, if any, by which
the Operating Expenses exceed the applicable amount. However, the maximum
amount of such refund cannot exceed the amount of the advisory fees paid to the
advisor for that fiscal year. The limitation required the advisor to refund
$606,000, $589,000 and $250,000 of the annual advisory fee for 1997, 1996 and
1995, respectively.

In accordance with these provisions, the current advisory agreement between
the Trust and BCM dated October 15, 1998 (the "Trust Advisory Agreement")
specifically provides for a refund to the Trust of the amount by which the
Operating Expenses of the Trust for any fiscal year exceed the limitation set
forth in the provisions of the Declaration of Trust, "or any similar limitation
(if contained) in a successor Declaration of Trust or [Articles] of
Incorporation . . . ."

The Articles of Incorporation of TCI place no similar limits on TCI's
operating expenses. Although a limitation on operating expenses is included in
the current advisory agreement between TCI and BCM dated October 15, 1998 (the
"TCI Advisory Agreement"), there is no guarantee that future advisory
agreements will include any limitation. If the limitation on operating expenses
is eliminated from future advisory agreements, there is a risk to stockholders
that, to the extent additional sums are paid to the advisor, less money will be
available for distributions to stockholders. See "Proposed Incorporation
Procedure and Merger -- Business Activities after Incorporation Procedure and
Merger".

The Trust's Declaration of Trust provides that any contract with an advisor
must provide for annual renewal or extension after an initial term of no more
than two years, subject to approval by shareholders of the Trust. The Articles
of Incorporation of TCI contain no such requirement. Although the current
Directors of TCI intend to continue to submit the TCI Advisory Agreement to
stockholders for approval each year following the Merger, this practice could
be discontinued at any time in the future. If this practice is discontinued,
stockholders will not have the opportunity to review and approve future
advisory agreements.

The various fees payable to BCM under the current Trust Advisory Agreement
and the means by which such fees are calculated are discussed in detail below
under "Business and Properties of the Trust -- The Trust Advisory Agreement".

CERTAIN ANTI-TAKEOVER EFFECTS

Stockholders should recognize that the acquisition safeguards discussed more
fully below under "Proposed Incorporation Procedure and Merger -- Principal
Reasons for the Incorporation Procedure and the Merger -- Acquisition
Safeguards" could have the effect of rendering difficult or discouraging a
future attempt to acquire control of TCI without the approval of the Board of
Directors. This would be the case even if stockholders of TCI might desire such
a change in control and even if such a change in control would be beneficial to
the stockholders generally. As a result, stockholders might be deprived of an
opportunity to receive a premium for their shares over prevailing market
prices. The Incorporation Procedure and the Merger, therefore, may be viewed as
limiting stockholders' rights. See "Proposed Incorporation Procedure and
Merger".

- 16 -
<PAGE>

The safeguards against acquisition of TCI include the following:

(i) The requirement of an 80% vote to make, adopt, alter, amend,
change or repeal

(a) TCI's Bylaws and

(b) certain key provisions of TCI's Articles of
Incorporation that require, among other things, a
two-thirds super-majority vote (see below)

(ii) The requirement of a two-thirds super-majority vote for

(a) the removal of a director from the Board of Directors
and

(b) the undertaking of Business Combinations (as defined
in the Articles of Incorporation) and

(iii) The inability generally of stockholders to call meetings
of stockholders.

If the Incorporation Procedure and Merger are consummated, the following
persons and entities will hold, collectively, approximately 51.7% of the
outstanding shares of TCI and, therefore, they will effectively have veto power
over those corporate actions requiring a super-majority vote of stockholders,
as well as other corporate actions requiring only a majority vote of
stockholders: the Board of Directors of TCI, the officers of TCI and certain
affiliates of TCI (including BCM, currently the advisor to both the Trust and
TCI). Accordingly, the Merger could entrench the present Board of Directors and
will effectively give TCI's management the power to block certain corporate
transactions, as discussed more fully below under "Proposed Incorporation
Procedure and Merger -- Possible Negative Considerations," --"Comparison of
Principal Differences Between the Trust and TCI".

CONSUMMATION OF THE MERGER COULD TRIGGER DEFAULTS

Certain of the mortgage loans encumbering properties owned by TCI and the
Trust require or may require that TCI and the Trust obtain consent from lenders
prior to finalization of the Merger. In some instances, consummation of the
Merger would constitute a default under the mortgage loans requiring that TCI
and the Trust obtain a waiver from the lenders to avoid a possible default. If
either TCI or the Trust is unable to obtain required consents or waivers, the
affected loans may need to be refinanced or paid off, and the respective
company could incur fees or other costs and expenses in connection with such
refinancings, including the possibility that the substitute financing will be
at a higher interest rate.

AUTHORIZATION TO ISSUE PREFERRED STOCK

The Articles of Incorporation of TCI authorize the issuance of up to
1,000,000 shares of preferred stock by action of the Board of Directors without
stockholder approval. The preferred stock may be issued in one or more series
with such preferences, limitations and rights as shall be determined by the
Board of Directors of TCI. See "Proposed Incorporation Procedure and Merger --
Comparison of the Securities of TCI and the Trust-- Preferred Stock".

The Board of Directors of TCI has authorized the creation and issuance of
6,000 shares of Series A Cumulative Convertible Preferred Stock, of which 5,829
shares were issued in connection with the acquisition of real property. See
"Proposed Incorporation Procedure and Merger -- Comparison of the Securities of
TCI and the Trust -- Preferred Stock". Any future issuance of preferred stock
could dilute the stock ownership or voting power of current stockholders.

Although no preferred stock has been issued or is being issued as part of
the Incorporation Procedure and the Merger, and although the current Directors
of TCI have no present intention of issuing any additional shares of preferred
stock, preferred stock could be issued as a safeguard against acquisition of
TCI by diluting

- 17 -
<PAGE>

the stock ownership and voting power of a person or entity seeking to acquire
control of TCI. This could occur in at least one of two ways:

(1) privately placing such preferred stock with purchasers not
hostile to the TCI Board of Directors to oppose an
unsolicited takeover bid; or

(2) authorizing holders of a series of preferred stock to vote
as a class, either separately or with the holders of shares
of TCI common stock, on any merger, sale or exchange of
assets or any other extraordinary corporate transaction
involving TCI.

EFFECT OF CERTAIN MAJORITY AND SUPER-MAJORITY VOTING PROVISIONS OF TCI

Following the Merger the Board of Directors and executive officers of TCI
and entities with which TCI is affiliated, including BCM, will collectively own
approximately 51.7% of the outstanding shares of TCI common stock. They will,
therefore, have control over corporate actions requiring the vote of a majority
of the stockholders.

Even if such shareholdings were reduced below 50%, however, such entities
could still have effective veto power over the following actions based on the
super-majority voting provisions (i.e., provisions requiring more than a simple
majority vote) included in the Articles of Incorporation of TCI:

. the removal of directors,

. the amendment of the Bylaws and certain key provisions of the
Articles of Incorporation of TCI, and

. the consummation of Business Combinations (as defined in the
Articles of Incorporation).

Because of these significant holdings by affiliates of TCI, all other
stockholders would effectively have to vote as a group to exercise veto power
over the actions requiring a super-majority vote of stockholders. See "Proposed
Incorporation Procedure and Merger -- Possible Negative Considerations," "--
Management after Incorporation Procedure and Merger -- The Director Removal
Provision" and "--Amendment Provisions".

The Trust has engaged, and TCI may continue to engage, in transactions with
certain related parties, as discussed more fully below under "Business and
Properties of the Trust -- Certain Business Relationships and Related Party
Transactions". Currently, provisions of a settlement reached in litigation
between stockholders and TCI and the Trust, among others, restrict these
transactions.

Specifically, the provisions of the Modification of Stipulation of
Settlement (the "Olive Modification") dated April 28, 1994, with regard to a
class and derivative action entitled Olive et al. v. National Income Realty
Trust et al. (the "Olive Litigation"), require that TCI's Board of Directors
unanimously approve certain related party transactions. Additionally, under the
Olive Modification related party transactions are to be discouraged and may
only be entered into in exceptional circumstances and after a determination by
TCI's Board of Directors that (i) the transaction is in the best interest of
TCI and (ii) no other opportunity exists that is as good as the opportunity
presented.

On January 27, 1997, the parties to the Olive Litigation entered into an
Amendment to the Olive Modification (the "Olive Amendment") which the court
approved. The Olive Amendment provided for the addition of four new
unaffiliated members to the Board of Directors and set forth new requirements
for the approval of any transactions with certain affiliates until April 28,
1999.

Under the Olive Amendment, all TCI shares owned by Gene E. Phillips or any
of his affiliates must be voted at all stockholder meetings of TCI held until
April 28, 1999 in favor of all new members of the Board of Directors added
under the Olive Amendment. The Olive Amendment also requires that, until April
28, 1999, all

- 18 -
<PAGE>

TCI shares owned by Mr. Phillips or his affiliates in excess of forty percent
(40%) of TCI's outstanding shares shall be voted in proportion to the votes
cast by all non-affiliated stockholders of TCI.

BCM, in its position as advisor to the Trust, and the officers and Trustees
of the Trust are obligated to comply with the Olive Modification and discourage
related party transactions in accordance with the Olive Modification and Olive
Amendment.

If the Incorporation Procedure and the Merger are adopted, the requirements
under the Olive Modification and the Olive Amendment will continue to apply to
TCI until April 28, 1999. Likewise, the Board of Directors will be required to
discourage related party transactions. See "Business and Properties of the
Trust --Involvement in Certain Legal Proceedings" for a more complete
description of the Olive Litigation and the resulting Olive Modification and
Olive Amendment. After April 28, 1999, however, the Board of Directors will
have greater discretion as to related party transactions, subject to the
limitations set forth in the Articles of Incorporation of TCI.

TCI's Articles of Incorporation generally permit related party transactions
if approved by a majority of the independent Directors. The existing
Declaration of Trust absolutely prohibits certain transactions between the
Trust and certain related parties, regardless of the fairness of the terms of
such transactions or whether such transactions are authorized by a majority of
unaffiliated Trustees or approved by the Trust's shareholders. These specific
prohibitions and the general restrictions on transactions between the Trust and
certain related parties are described under "Proposed Incorporation Procedure
and Merger -- Business Activities after Incorporation Procedure and Merger --
Restrictions on Related-Party Transactions". Because TCI's Articles of
Incorporation contain no analogous prohibitions, the Merger will permit TCI
greater flexibility to engage in a larger class of transactions with related
parties than the Declaration of Trust currently permits between the Trust and
certain related parties (but, for the reasons discussed above, only after April
28, 1999).

There is a risk to stockholders that, following the Merger, related parties
may benefit from a related party transaction to the detriment of stockholders
if it is determined that the transaction was less beneficial to TCI than a
similar transaction with an unrelated party would have been. However, the Board
of Directors and officers of TCI will have a fiduciary duty to act in the best
interests of TCI and its stockholders. See "Proposed Incorporation Procedure
and Merger -- Comparison of Principal Differences Between the Trust and TCI".

The Board of Trustees believes that the restrictions in TCI's Articles of
Incorporation and those under Chapter 78 of the Nevada Revised Statutes,
together with the oversight of related party transactions mandated by the Olive
Modification (see "Proposed Incorporation Procedure and Merger -- Business
Activities after Incorporation Procedure and Merger -- Restrictions on Related-
Party Transactions"), will offer adequate protection to ensure the fairness and
propriety of transactions between TCI and related parties.

MARKET PRICE OF TCI COMMON STOCK

As part of the Merger, existing shareholders of the Trust would
automatically become stockholders of TCI upon the conversion of all shares of
CME Corporation into newly issued TCI common stock on the basis of the ratio of
1.181 shares of TCI common stock for each Trust share (the "Exchange Ratio").
However, there can be no assurance that the market price per share of the TCI
common stock after the Merger will be equal to the market price per share of
such shares before, or that the marketability of the TCI common stock will
remain consistent with the marketability of such shares prior thereto. Prices
for TCI common stock will be determined in the marketplace and may be
influenced by many factors, including investor perception of the changes
effected through the Merger.

TAX RISKS

CONTINUED QUALIFICATION AS A REIT. TCI has elected to be treated as a REIT
under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended
(the "Code"). TCI has, in the opinion of TCI's management, qualified for
federal taxation as a REIT for each year subsequent to December 31, 1983.

- 19 -
<PAGE>

Notwithstanding TCI's current qualification as a REIT, the Articles of
Incorporation of TCI do not require that TCI remain qualified as a REIT. At
present, the Board of Directors of TCI intends to continue electing REIT
treatment. However, should the Board of Directors change that policy, TCI would
be required to pay federal income tax on its taxable income at corporate rates.
Unless entitled to relief under certain statutory provisions, TCI also would
not be allowed to re-elect REIT status for the following four taxable years.
This would reduce the net earnings of TCI available for distribution to
stockholders because of the additional tax liability to TCI for the year or
years involved unless TCI had loss carryforwards. TCI might be required to
borrow funds or to sell certain of its investments to pay the tax due on any
distributions made.

AD VALOREM TAX REASSESSMENTS. A risk exists that consummation of the Merger
will cause an ad valorem tax reassessment on the properties held by the Trust
in some states.

DILUTIVE EFFECT OF THE INCORPORATION PROCEDURE AND THE MERGER

As a result of the issuance of shares of TCI common stock to shareholders of
the Trust, the Incorporation Procedure and the Merger may have a dilutive
effect on net income per share in the future. In addition, the issuance of
additional shares of TCI common stock to shareholders of the Trust will result
in a reduction in the ownership and voting interests of holders of TCI common
stock before the Merger. After the Merger, TCI shareholders will own
approximately 45% of all outstanding shares of TCI common stock and
shareholders of the Trust will own approximately 55% of all outstanding shares
of TCI common stock. Neither group of holders will have separate approval
rights with respect to any actions or decisions of TCI.

POTENTIAL ADVERSE EFFECTS OF COMBINING TCI AND THE TRUST

TCI and the Trust are large enterprises with operations in a number of
different states. There can be no assurance that costs or other factors
associated with the integration of the two entities would not adversely affect
future combined results of operations or the benefits of expected costs
savings.

Real property investments are subject to varying degrees of risk and are
relatively illiquid. Income from real property investments and TCI's ability to
make expected distributions to its stockholders may be adversely affected by
the following:

. the general economic climate,

. local conditions such as oversupply of rental properties or a
reduction in demand for rental properties in the area,

. the attractiveness of the properties owned by TCI to tenants,

. zoning or other regulatory restrictions,

. the ability of TCI to provide adequate maintenance and
insurance, and

. increased operating costs (including insurance premiums and
real estate taxes).

TCI would also be adversely affected if tenants were unable to pay rent or
TCI were unable to rent its properties on favorable terms. If TCI were unable
to promptly relet its rental properties or renew the leases for a significant
number of its rental properties, or if the rental rates upon such renewal or
reletting were significantly lower than expected rates, then TCI's funds from
operations and its ability to make expected distributions to stockholders may
be adversely affected. In addition, certain expenditures associated with each
equity investment (such as real estate taxes and maintenance costs) generally
are not reduced when there is a reduction in income from the investment.

- 20 -
<PAGE>

OTHER POTENTIAL CONFLICTS OF INTEREST

The real estate business is highly competitive, and both the Trust and TCI
compete with numerous entities engaged in real estate activities. As described
below under "Business and Properties of the Trust -- Certain Business
Relationships and Related Party Transactions", the officers and Trustees of the
Trust also serve as officers or directors of certain other entities, each of
which is also advised by BCM, and each of which has business objectives similar
to those of the Trust and TCI. Such Trustees and officers and BCM each owe a
fiduciary duty to such other entities as well as to the Trust and TCI under
applicable law.

Additionally, the Trust and TCI also compete with other entities that are
affiliates of BCM and that may have investment objectives similar to those of
the Trust and TCI and that may compete with the Trust and TCI in leasing,
selling and financing real estate and mortgage notes.

In resolving any potential conflicts of interest which may arise, BCM has
informed the Trust and TCI that it intends to continue to exercise its best
judgment as to what is fair and reasonable under the circumstances.

- 21 -
<PAGE>

GENERAL SHAREHOLDER INFORMATION

SHAREHOLDERS OF THE TRUST

GENERAL. This Joint Proxy Statement/Prospectus is furnished in connection
with the solicitation by the Board of Trustees of the Trust of proxies to be
used at the Trust special meeting for a vote upon a proposal to convert the
Trust from a California business trust into a California corporation, CME
Corporation, and to merge CME Corporation with and into TCI.

The Trust special meeting will be held at 10:00 a.m., Dallas time, on ,
1999, at 10670 North Central Expressway, Suite 300, Dallas, Texas 75231. The
Trust's financial statements for the year ended December 31, 1997 were audited
by BDO Seidman, LLP. A representative from BDO Seidman, LLP will be present at
the Trust special meeting to respond to appropriate questions and such
representative will have an opportunity to make a statement if such
representative desires to do so. This Joint Proxy Statement/Prospectus and the
accompanying Proxy are first being mailed to Trust shareholders on or about
, 1999.

If the Incorporation Procedure and Merger are approved at the Trust special
meeting, holders of Trust shares will automatically become shareholders of CME
Corporation (without any need to exchange share certificates or take any other
action). At the Trust special meeting, holders of Trust shares will be voting
on the Incorporation Procedure and the Merger as both shareholders of the Trust
and as shareholders of CME Corporation.

SHAREHOLDERS ENTITLED TO VOTE. Only holders of record of issued and
outstanding Trust shares at the close of business on , 1999 (the "Trust
Record Date"), are entitled to vote at the Trust special meeting and at any
adjournments thereof. At the close of business on November 30, 1998, there were
4,017,150 Trust shares outstanding. Each holder is entitled to one vote for
each Trust share held on the Trust Record Date.

VOTING OF PROXIES. When the enclosed proxy card is properly executed and
returned, the Trust shares represented thereby will be voted at the Trust
special meeting in accordance with the instructions noted thereon. Shareholders
may choose to vote for, against or abstain from voting on the Incorporation
Procedure and the Merger proposal in its entirety.

In the absence of other instructions, the Trust shares represented by a
properly executed and submitted proxy card will be voted against the
Incorporation Procedure and the Merger.

When a signed proxy card is returned with choices specified with respect to
voting matters, the Trust shares represented are voted by the proxies
designated on the proxy card in accordance with the shareholder's instructions
to the tabulator. A shareholder wishing to name another person as his or her
proxy may do so by crossing out the names of the designated proxies and
inserting the name of such other person to act as his or her proxy. In that
case, it will be necessary for the shareholder to sign the proxy card and
deliver it to the person named as his or her proxy and for the person so named
to be present and to vote at the Trust special meeting. Proxy cards so marked
should not be mailed directly to the Trust.

VOTE REQUIRED FOR APPROVAL. Pursuant to Section 6.7 of the Declaration of
Trust, a majority of the issued and outstanding Trust shares entitled to vote
at a meeting of shareholders, represented in person or by proxy, shall
constitute a quorum at the Trust special meeting. For the purposes of
determining the presence of a quorum at the Trust special meeting and the
number of votes cast with respect to the Incorporation Procedure and the
Merger, all votes cast for or against and abstentions will be included.
Abstentions will have the same legal effect as a vote against the proposal.
Broker nonvotes, if any, will be treated as not present and not entitled to
vote for the proposal. If a quorum should not be present, the Trust special
meeting may be adjourned from time to time until a quorum is obtained.
Shareholders are, therefore, urged to sign the accompanying form of proxy and
return it promptly.

- 22 -
<PAGE>

Although Section 3.5 of the Declaration of Trust requires the affirmative
vote of only a majority of the votes cast at a meeting of shareholders to
approve the Incorporation Procedure and the Merger, Section 200.5 of the
California General Corporation Law requires an affirmative vote of the holders
of a majority of the outstanding Trust shares to approve the Incorporation
Procedure and the Merger. The provisions of the Declaration of Trust would only
prevail over the California General Corporation Law if the Declaration of Trust
required a greater proportion of the outstanding Trust shares to approve the
Incorporation Procedure and the Merger. Because it does not, the California
General Corporation Law controls, and the Incorporation Procedure and the
Merger must be approved by the affirmative vote of the holders of a majority of
the outstanding Trust shares.

As of November 30, 1998, the Trustees, executive officers of the Trust and
their affiliates collectively held approximately 56.0% of the outstanding Trust
shares. Under the Olive Amendment, however, until April 28, 1999, all Trust
shares owned by Gene E Phillips and affiliates of Mr. Phillips in excess of
forty percent (40%) of the Trust's outstanding shares must be voted in
proportion to the votes cast by all non-affiliated shareholders of the Trust.
Therefore, the Trustees, executive officers of the Trust and their affiliates
cannot necessarily approve the Incorporation Procedure and the Merger on their
own.

DISSENTERS' RIGHTS. Under California law, shareholders of the Trust will not
have the right to dissent and obtain payment with respect to Merger unless
demands for such payment are received from shareholders holding 5 percent or
more of the outstanding Trust shares. As of November 30, 1998, there were
4,017,150 Trust shares outstanding. Consequently, no Trust shareholder will
have the right to dissent and receive payment for Trust shares in lieu of
shares of TCI common stock unless shareholders holding in the aggregate no less
than 200,858 Trust shares file a demand that the Trust purchase those shares at
their fair market value. See "Proposed Incorporation Procedure and Merger --
Comparison of the Securities of TCI and the Trust --Dissenters' Rights to
Dissent and Obtain Payment."

REVOCATION OF PROXIES. A proxy card is enclosed. Any shareholder who
executes and delivers the proxy card may revoke the authority granted under the
proxy at any time before its use by giving written notice of such revocation to
American Stock Transfer and Trust Company, 40 Wall Street, 46th Floor, New
York, New York 10005, or by executing and delivering a proxy bearing a later
date. A SHAREHOLDER MAY ALSO REVOKE A PROXY BY ATTENDING AND VOTING AT THE
TRUST SPECIAL MEETING.

STOCKHOLDERS OF TCI

GENERAL. This Joint Proxy Statement/Prospectus is also furnished in
connection with the solicitation by the Board of Directors of TCI of proxies to
be used at the TCI special meeting for a vote upon a proposal to merge CME
Corporation with and into TCI. The TCI special meeting will be held at 10:00
a.m., Dallas time, on , 1999, at 10670 North Central Expressway, Suite
300, Dallas, Texas 75231. TCI's financial statements for the year ended
December 31, 1997 were audited by BDO Seidman, LLP. A representative from BDO
Seidman, LLP will be present at the TCI special meeting to respond to
appropriate questions and such representative will have an opportunity to make
a statement if such representative desires to do so. This Joint Proxy
Statement/Prospectus and the accompanying Proxy are first being mailed to
stockholders on or about , 1999.

STOCKHOLDERS ENTITLED TO VOTE. Only holders of record of issued and
outstanding shares TCI common stock at the close of business on , 1999 (the
"TCI Record Date"), are entitled to vote at the TCI special meeting and at any
adjournments thereof. At the close of business on November 30, 1998, there were
3,875,944 shares of TCI common stock outstanding. Each holder is entitled to
one vote for each share of TCI common stock held on the TCI Record Date.

VOTING OF PROXIES. When the enclosed proxy card is properly executed and
returned, the shares of TCI common stock represented thereby will be voted at
the TCI special meeting in accordance with the instructions

- 23 -
<PAGE>

noted thereon. Stockholders may choose to vote for, against or abstain from
voting on the Merger proposal in its entirety.

In the absence of other instructions, the shares of TCI common stock
represented by a properly executed and submitted proxy card will be voted in
favor of the Merger.

When a signed proxy card is returned with choices specified with respect to
voting matters, the shares of TCI common stock represented are voted by the
proxies designated on the proxy card in accordance with the stockholder's
instructions to the tabulator. A stockholder wishing to name another person as
his or her proxy may do so by crossing out the names of the designated proxies
and inserting the name of such other person to act as his or her proxy. In that
case, it will be necessary for the stockholder to sign the proxy card and
deliver it to the person named as his or her proxy and for the person so named
to be present and to vote at the TCI special meeting. Proxy cards so marked
should not be mailed directly to TCI.

VOTE REQUIRED FOR APPROVAL. Pursuant to Section 2.06 of TCI's Bylaws, a
majority of the issued and outstanding shares of TCI common stock entitled to
vote at a meeting of stockholders, represented in person or by proxy, shall
constitute a quorum at the TCI special meeting. For the purposes of determining
the presence of a quorum at the TCI special meeting and the number of votes
cast with respect to the Merger, all votes cast for or against and abstentions
will be included. Abstentions will have the same legal effect as a vote against
the proposal. Broker nonvotes, if any, will be treated as not present and not
entitled to vote for the proposal. If a quorum should not be present, the TCI
special meeting may be adjourned from time to time until a quorum is obtained.
Stockholders are, therefore, urged to mark and sign the accompanying form of
proxy and return it promptly.

Article TENTH of TCI's Articles of Incorporation requires the affirmative
vote of sixty-six and two-thirds percent (66 2/3%) of the votes entitled to be
cast by the holders of all the shares of TCI common stock then outstanding,
voting together as a single class, to approve the Merger.

As of November 30, 1998, the Board of Directors, executive officers of TCI
and their affiliates collectively held approximately 44.6% of the outstanding
shares of TCI common stock. Under the Olive Amendment, until April 28, 1999,
all shares of TCI common stock owned by Gene E Phillips affiliates of Mr.
Phillips in excess of forty percent (40%) of TCI's outstanding shares must be
voted in proportion to the votes cast by all non-affiliated shareholders of
TCI. The Directors, executive officers of TCI and their affiliates cannot
approve the Incorporation Procedure and the Merger on their own.

DISSENTERS' RIGHTS. Under Nevada law, TCI's stockholders will not have the
right to dissent and obtain payment with respect to any plan of merger or
exchange upon which the stockholders may be entitled to vote for so long as TCI
common stock is listed on the NYSE or is held of record by at least 2,000
persons. TCI common stock is listed on the NYSE.

REVOCATION OF PROXIES. A proxy card is enclosed. Any stockholder who
executes and delivers the proxy card may revoke the authority granted under the
proxy at any time before its use by giving written notice of such revocation to
American Stock Transfer and Trust Company, 40 Wall Street, 46th Floor, New
York, New York 10005, or by executing and delivering a proxy bearing a later
date. A STOCKHOLDER MAY ALSO REVOKE A PROXY BY ATTENDING AND VOTING AT THE TCI
SPECIAL MEETING.

- 24 -
<PAGE>

PROPOSED INCORPORATION PROCEDURE AND MERGER

The following description of the Incorporation Procedure and the Merger
describes the material provisions of the Merger Agreement, but does not purport
to be complete and is qualified in its entirety by reference to the Merger
Agreement, which is attached to this Joint Proxy Statement/Prospectus as
Appendix B. Stockholders of TCI and shareholders of the Trust are urged to
carefully review the Merger Agreement in its entirety.

INTRODUCTION

TCI and the Trust have entered into the Merger Agreement providing for the
Incorporation Procedure and the Merger. Pursuant to the Merger Agreement, the
Trust shall file Articles of Incorporation with the Secretary of State of the
State of California, pursuant to which each outstanding Trust share shall
become, without any additional action of any stockholder of the Trust, one
fully paid, nonassessable share of the common stock of CME Corporation, par
value $0.01 per share. Immediately thereafter, at the time specified in the
Merger Agreement (the "Effective Time"), CME Corporation will merge with and
into TCI, with TCI to be the surviving corporation. As a result of the
Incorporation Procedure and the Merger, each share of common stock of CME
Corporation outstanding immediately prior to the Effective Time will be
automatically converted into 1.181 shares of TCI common stock.

At November 30, 1998, there were outstanding 4,017,150 Trust shares. At
November 30, 1998, there were outstanding 3,875,944 shares of TCI common stock.
At the Effective Time there will be no Trust shares (or CME Corporation shares)
outstanding and there will be, in the aggregate, approximately 8,620,198 shares
of TCI common stock outstanding. At the Effective Time, shareholders of the
Trust will own approximately 55%, in the aggregate, of all of the issued and
outstanding shares of TCI common stock, and stockholders of TCI will own
approximately 45%, in the aggregate, of all issued and outstanding shares of
TCI common stock.

The total number of shares of TCI common stock to be distributed to
shareholders of the Trust was determined in conjunction with the opinions
rendered by the financial advisors hired by both TCI and the Trust to evaluate
the companies. See "-- Opinions of Financial Advisors", below.

BACKGROUND OF THE INCORPORATION PROCEDURE AND MERGER

The Board of Trustees of the Trust and the Board of Directors of TCI have
unanimously approved the Incorporation Procedure and the Merger after
conducting a thorough evaluation of strategic alternatives available to each of
them.

In June 1997, the Board of Trustees of the Trust and the Board of Directors
of TCI directed that BCM study possible methods for long term growth of the
companies including the possible consolidation of the companies with each other
as well as other companies. The management of BCM commenced a review of
alternative methods to restructure the portfolios and operations of the Trust
and TCI. BCM management sought to determine a course of action which would
result in one or more entities which would be more attractive to the investment
community and be able to provide increased value to the stockholders.

On September 9, 1997, BCM provided the Boards with long term business plan
proposals for each of the companies. The proposals included the possibility of
mergers with other unspecified REITS or spin-offs of real estate assets into
new entities. The Boards met and reviewed these proposals and directed BCM to
continue the review of such possible transactions. The Boards met again on
December 11, 1997, and reviewed a new proposal for long term strategy for each
of the Trust and TCI. BCM management recommended that the Trust be merged into
TCI. The Boards decided to wait until after the four new Board members joined
the Boards in January and February 1998 to consider this matter.

The Boards met again on February 10, 1998, with the new board members in
attendance. The board members directed BCM management to determine what would
be involved in the proposed merger including the costs which would be incurred.

- 25 -
<PAGE>

On February 25, 1998, BCM provided the Boards with additional information on
the proposed merger as well as the various steps which would need to be taken.

On April 9, 1998, the Boards met and authorized BCM management to proceed
with the engagement of investment banking firms and legal counsel to evaluate
and advise the Boards on the proposed merger transaction.

On May 14, 1998, the Board of Trustees of the Trust approved the engagement
of Strategic Law Partners to serve as the California legal counsel to the Board
of Trustees in connection with the merger transaction. On May 29, 1998, the
Board of Trustees of the Trust approved the engagement of Sutro & Co. to
provide investment banking services in connection with the merger transaction.

On May 14, 1998, the Board of Directors of TCI approved the engagement of
Kummer, Kaempfer, Bonner and Renshaw to serve as the Nevada legal counsel to
TCI's Board of Directors in connection with the merger transaction. On May 12,
1998, the Board of Directors approved the engagement of Wedbush Morgan
Securities to provide investment banking services in connection with the merger
transaction.

On June 2, 1998, representatives of Sutro & Co. and Wedbush Morgan
Securities visited BCM's offices to interview key personnel of the Trust and
TCI.

On June 19, 1998, the Trust and TCI engaged Marshall & Stevens Incorporated
to provide current valuations of the real property owned by the Trust and TCI.
On August 13, 1998, the valuations were provided to the Trust and TCI.

On August 4, 1998, representatives of Wedbush Morgan Securities met with the
TCI Board of Directors and reviewed the methods being used to analyze the
values of TCI and the Trust. Also on August 4, 1998, representatives of Sutro &
Co. met with the Trust's Board of Trustees and reviewed the methods they were
employing to determine the values of TCI and the Trust.

On September 10, 1998, representatives of Wedbush Morgan Securities met with
the Board of Trustees of the Trust. The Board of Trustees was provided with a
review of the initial results of the various analyses performed by them.

On September 10, 1998, representatives of Sutro & Co. met with the Board of
Directors of TCI. The Board of Directors was provided with a review of the
various analyses performed by them.

On September 21, 1998, the Board of Trustees of the Trust and the Board of
Directors of TCI were informed by their respective investment banking firms
that they each recommended as fair an exchange ratio of 1.181 shares of TCI
common stock for each share of the Trust. The Board of Trustees of the Trust
and the Board of Directors of TCI each approved the recommended exchange ratio.
On September 21, 1998, the Trust and TCI executed a Letter of intent and
distributed a press release announcing the matter.

On November 18, 1998, the Trust and TCI executed the Merger Agreement.

OVERVIEW OF INCORPORATION PROCEDURE AND MERGER

Shareholders of the Trust should recognize that the Incorporation Procedure
and the Merger will result in a change in the nature of their investment.
Investors will own an equity interest in a Nevada corporation rather than a
California business trust. In addition, the Incorporation Procedure and the
Merger will have the following effects, each of which may be viewed as limiting
stockholders' rights: (i) the Directors of TCI, unlike the Trustees of the
Trust, are entitled to indemnification for liability arising from gross
negligence and reckless disregard of duty; (ii) TCI has adopted certain anti-
takeover defenses that have not been adopted by the Trust, which will have the
effect of rendering more difficult or discouraging a future attempt to acquire
control of TCI

- 26 -
<PAGE>

by a merger, tender offer, proxy contest or removal of incumbent management,
even though certain stockholders of TCI might desire such a change in control;
and (iii) certain protections available under California law will be
eliminated.

Stockholders of TCI should recognize that the Incorporation Procedure and
the Merger will result in the dilution of their existing interests in TCI as a
result of the shares of TCI common stock to be issued to the shareholders of
the Trust. See "-- Principal Reasons for the Incorporation Procedure and the
Merger -- Acquisition Safeguards," "-- Possible Negative Considerations," "--
Certain Potential Conflicts of Interest" and "-- Comparison of Principal
Differences Between the Trust and TCI".

Because no explicit statutory authority permits a California business trust
to merge directly with and into a Nevada corporation, the Incorporation
Procedure and the Merger would be accomplished by converting the Trust into a
California corporation (CME Corporation) and then merging CME Corporation (as
successor to the Trust) with TCI. As of the time of the Merger, and because the
conversion of the Trust into CME Corporation will occur immediately prior to
the Merger, CME Corporation will have no significant business, assets or
liabilities of any consequence and no operating history.

The Incorporation Procedure and Merger will be accomplished pursuant to the
terms of the proposed Merger Agreement, a form of which is attached as Appendix
B to this Joint Proxy Statement/Prospectus, and which is incorporated herein by
reference and made a part of this document. As a result of the Merger, (i) CME
Corporation will cease to exist as a separate entity; (ii) TCI, by operation of
law, will succeed to all the rights and properties, and be subject to all the
obligations and liabilities, of the Trust including, without limitation, those
under (a) Trust Advisory Agreement, (b) the current property management
agreement with Carmel Realty Services Ltd. ("Carmel Ltd.") and (c) the current
Brokerage Agreement (the "Brokerage Agreement") with Carmel Realty, Inc.
("Carmel Realty"); and (iii) existing shareholders of the Trust would
automatically become stockholders of TCI by conversion of all shares of CME
Corporation for newly issued shares of TCI common stock on the basis of a
conversion ratio of 1.181 shares of TCI common stock for each Trust share.

Shareholders of the Trust will be required to surrender their Trust share
certificates in exchange for TCI common stock certificates, but should not do
so at this time. Shareholders who do not surrender their Trust share
certificates will accrue dividends, if declared, but will have their
distribution checks, if any, held by American Stock Transfer and Trust Company
until they surrender their old certificates. No interest will be paid on
amounts so held.

SHAREHOLDERS OF THE TRUST WILL NOT HAVE ANY DISSENTERS' RIGHTS WITH RESPECT
TO THE INCORPORATION PROCEDURE AND THE MERGER EXCEPT UNDER LIMITED
CIRCUMSTANCES. SEE "-- COMPARISON OF THE SECURITIES OF TCI AND THE TRUST --
DISSENTERS' RIGHTS TO DISSENT AND OBTAIN PAYMENT".

The discussion of the material terms of the Incorporation Procedure and the
Merger contained in this Joint Proxy Statement/Prospectus is qualified in its
entirety by reference to the Merger Agreement. THE PROPOSED INCORPORATION
PROCEDURE AND THE MERGER ARE A SINGLE UNIFIED PROPOSAL TO BE APPROVED OR
REJECTED BY THE SHAREHOLDERS OF THE TRUST AND STOCKHOLDERS OF TCI IN ITS
ENTIRETY. If the Incorporation Procedure and the Merger are not approved, the
Trust will not convert to a California corporation and the Merger with TCI and
the attendant conversion of securities will not occur. The Trust would continue
to operate as an unincorporated California business trust, subject to the
Declaration of Trust.

No change in TCI's continued qualification for taxation as a REIT under the
Code is expected to result from the Incorporation Procedure and the Merger or
TCI's operation of the Trust's business following the Incorporation Procedure
and the Merger.

Consummation of the Incorporation Procedure and the Merger is contingent
upon stockholder approval. For shareholders of the Trust, pursuant to Section
3.5 of the Declaration of Trust, the affirmative vote of the

- 27 -
<PAGE>

holders of a majority of the outstanding Trust shares represented at the Trust
special meeting of shareholders will be required to approve the Incorporation
Procedure and the Merger. In addition, Section 200.5 of the California General
Corporation Law requires a vote of a majority of the outstanding Trust shares
to approve the Incorporation Procedure and the Merger, which exceeds the voting
requirement for aspects of the Incorporation Procedure and the Merger provided
for in the Declaration of Trust.

For stockholders of TCI, the affirmative vote of the holders of 66 2/3% of
the outstanding shares of TCI common stock will be required to approve the
Merger. Holders of shares of TCI preferred stock are not entitled to vote on
the Merger.

The Board of Trustees and the Board of Directors anticipate consummating the
Incorporation Procedure and the Merger as promptly as practicable after
approval by the shareholders of the Trust and stockholders of TCI.

PRINCIPAL REASONS FOR THE INCORPORATION PROCEDURE AND THE MERGER;
RECOMMENDATIONS OF THE BOARDS

The Board of Directors of TCI and the Board of Trustees of the Trust have
unanimously approved the Merger as in the best interest of TCI, the Trust and
their respective stockholders. The following discussions identify the principal
reasons underlying the unanimous approvals by both the Board of Directors of
TCI and the Board of Trustees of the Trust.

TCI

The Board of Directors of TCI has determined the terms of the Merger
Agreement and the transactions contemplated thereby are fair to, and in the
best interests of the holders of shares of TCI common stock. In reaching this
determination, the Board of Directors concluded that the Merger was likely to
increase the value of each stockholder's investment in TCI over what that value
would have been had TCI not agreed to the Merger and the opportunities created
by the Merger to increase stockholder value more than offset the risk inherent
in the Merger. In reaching this conclusion, the Board of Directors considered
that the Merger would:

(a) create a REIT with the same management team responsible for
the performance to date continuing to operate the entity
after the consolidation with future prospects for growth,
income and asset values;

(b) create a larger combined enterprise with total assets with
book value in excess of $665 million with complimentary
geographic real estate assets;

(c) permit the realization of administrative and capital expense
efficiencies in connection with the joint development of the
assets of TCI and the Trust in the future to generate cash
available for distribution reflective of the true value of
the properties spreading the combined overhead over a
greater number of assets; and

(d) create an opportunity for the next several years for the
combined entities' stockholders to achieve a substantial
market premium without disrupting the operation of the
properties of either entity.

In addition, the Board of Directors considered BCM management's position
with respect to the Merger. In BCM's view, TCI's best strategic alternative is
to combine with another REIT to create an enterprise with the scale and scope
of operations necessary to compete effectively in the industry. The Board of
Directors considered BCM's conclusion that a combined company would have an
improved cost structure which would allow it to better meet competitive
challenges in an industry that is likely to experience further consolidation
and substantially increased competition. In making its determination, the Board
of Directors also considered the view expressed by BCM that entities with
significant scale and scope will be likely to attract the most desirable
investment and financing opportunities as the real estate industry continues to
evolve. The Board of Directors

- 28 -
<PAGE>

further evaluated the conclusion of BCM that a significant alignment existed
between the strategic prospective of TCI and the Trust which share the same
management and similar business philosophies including mutual emphasis on real
properties located in several different states.

The Board of Directors weighed the advantages and opportunities against the
following risks associated with the Merger:

(a) The challenges inherent in the combination of two business
enterprises the size of the Trust and TCI and the possible
resulting diversion of management attention for an extended
period of time (which risk is lessened by the fact of the
common management of both entities); and

(b) The risk associated with a greater concentration of assets
in real estate and the risk incident to ownership and
financing of that real estate and interests therein,
including the general illiquidity of real estate
investments.

In reaching the determination that the terms of the Merger were fair to and
in the best interests of TCI's stockholders, the Board of Directors also
considered a number of additional factors, including its knowledge of the
Trust's business and discussions with the Trust's management concerning the
results of TCI's due diligence investigation of the Trust, the economic and
regulatory environment for real estate, the strategic, operational and
financial opportunities and risks associated with the Merger and the terms of
the Merger Agreement, the historical and current market prices of the Trust
shares and the opinion of TCI's financial advisor, Wedbush Morgan Securities,
(which opinion was confirmed in writing on September 21, 1998), to the effect
that as of September 21, 1998 the Exchange Ratio is fair to TCI and its
stockholders from a financial point of view. A copy of Wedbush Morgan
Securities' written opinion to the Board of Directors dated as of September 21,
1998 is attached as Appendix "C" to this Joint Proxy Statement/Prospectus.

The foregoing discussion of the information and factors which were given
weight by the Board of Directors is not intended to be exhaustive but is
believed to include all material factors considered by the Board of Directors.
The Board of Directors did not assign specific weights to the foregoing factors
and individual Directors may have given different weights to different factors.
The Board of Directors, however, unanimously approved the Merger Agreement and
all of the independent Directors recommend to the stockholders that they
approve and adopt the Merger Agreement and approve the transactions
contemplated thereby, including the issuance of shares of TCI common stock in
the Merger.

ALL OF THE INDEPENDENT DIRECTORS OF TCI RECOMMEND THAT TCI STOCKHOLDERS VOTE
FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE ISSUANCE OF SHARES OF TCI
COMMON STOCK PURSUANT TO THE MERGER AGREEMENT.

THE TRUST

The Trust's Board of Trustees has determined that the terms of the Merger
Agreement and the transactions contemplated thereby are fair to, and in the
best interests of, the Trust and its shareholders. In reaching this
determination, the Board of Trustees gave significant consideration to a number
of factors including, without limitation, the factors referred to below. In
view of the wide variety of factors bearing on its decision, the Board of
Trustees did not consider it practical to, nor did it attempt to, quantify or
otherwise assign relative weight to the factors it considered in reaching its
decision. The Board of Trustees received the advice of independent counsel
throughout its consideration of the Merger Agreement.

Such factors considered by the Board of Trustees included the following:

OPPORTUNITY FOR MARKET PREMIUM. The Board of Trustees considered that the
Merger would create an opportunity for the stockholders of the combined entity
to achieve a substantial market premium without

- 29 -
<PAGE>

disrupting the operation of either entity. The Board of Trustees also believed
that the combined entity would be able to attract greater attention from the
financial markets that could, over time, increase investor interest in the
combined entity's stock. As well, the Board of Trustees considered it
beneficial that the shares of TCI common stock are listed for trading on the
New York Stock Exchange.

OPINION OF SUTRO & CO.; MARKET PREMIUM. The Board of Trustees viewed as
favorable to its decision the opinion of Sutro & Co. to the effect that as of
September 21, 1998 the Exchange Ratio is fair to holders of Trust shares from a
financial point of view. The Board of Trustees also considered the oral and
written presentations made to it by Sutro & Co. A copy of Sutro & Co.'s written
opinion to the Board of Trustees dated as of September 21, 1998, is attached as
Appendix "D" to this Joint Proxy Statement/Prospectus.

The Board of Trustees reviewed the historical market prices and recent
trading activities of the Trust shares and TCI common stock. The Board of
Trustees considered as favorable to its decision that the per share value
consideration to be received by the Trust's shareholders in the Merger
represented a fair exchange for the per share value of the Trust shares.

MANAGEMENT'S VIEW. The Board of Trustees considered BCM's view that the
Trust's best strategic alternative is to combine with another REIT to create an
enterprise with the scale and scope of operations necessary to compete
effectively in the industry. The Board of Trustees evaluated BCM's conclusion
that such combined company would have an improved cost structure which would
allow it to better meet competitive challenges in an industry that is likely to
experience further consolidation and substantially increased competition. In
making its determination, the Board of Trustees also considered the view
expressed by BCM that entities with significant scale and scope will be likely
to attract the most desirable investment and financing opportunities as the
real estate industry continues to evolve. The Board of Trustees also weighed
the conclusion of BCM that a significant alignment existed between the
strategic prospective of TCI and the Trust which share the same management and
similar business philosophies including mutual emphasis on real properties
located in several different states.

THE TRUST'S BUSINESS, FINANCIAL CONDITION AND PROSPECTS. In evaluating the
Merger, the Board of Trustees considered information with respect to the
business, financial condition and results of operation of the Trust, as well as
the Trust's prospects for growth in view of industry and market conditions. The
Board of Trustees considered the constraints on the Trust's ability to raise
additional capital to take advantage of attractive opportunities due to its
trust structure.

TCI'S BUSINESS, FINANCIAL CONDITION AND PROSPECTS. The Board of Trustees
considered, among other things, information provided by BCM with respect to the
business, financial condition and results of operation of TCI. Such
consideration included, among other things, TCI's historically increasing
earnings growth and prospects for continued growth, TCI's relatively strong
borrowing capacity and lower capital costs, the strength and experience of the
senior management team which is the same management team which will remain in
place following the Merger, TCI's interests in real property operations and the
markets in which it competes. The Board of Trustees also considered risks
associated with the proposed Merger including, among other things, the
possibility that the Merger will not be consummated, diversion of management
attention from operational matters as a result of the proposed Merger, the
impact of limitations in the Merger Agreement on the Trust's ability to
undertake significant new initiatives prior to the Effective Time, the effect
of rising levels of competition on the Trust's existing properties and the
possibility that expected operating benefits from the Merger would be more
difficult to achieve than expected.

ALTERNATIVE TRANSACTIONS. The Board of Trustees considered strategic
alternatives other than a combination with TCI, such as possible joint ventures
or acquisitions, and concurred with BCM's view that none of the alternatives
considered would offer as much value to the holders of Trust shares as a
combination with TCI. The Board of Trustees also determined that, taking into
account, among other things, the continued application of the Olive Litigation,
preliminary inquiries of other possible combination candidates, the desire to
continue the successful services of BCM and other legal considerations, that it
was unlikely that the Trust

- 30 -
<PAGE>

would be able to negotiate a combination with another entity on terms as
attractive to the proposed Merger with TCI.

TERMS OF THE MERGER AGREEMENT. The Board of Trustees reviewed presentations
from, and discussed the terms and conditions of the Merger Agreement with, BCM
and representatives of its financial and legal advisors. Among other things,
the Board of Trustees considered the fact that the Merger Agreement provides a
fixed value of the consideration to be received by the holders of Trust shares
and the potential advantages and disadvantages associated therewith. The Board
of Trustees also gave consideration to the fact that the Merger would be a tax-
free transaction to the holders of Trust shares (except with respect to any
cash received for fractional shares) and the fact that the Merger Agreement
would permit continued payment of dividends to the holders of Trust shares
prior to the Effective Time of the Merger. The Board of Trustees also
considered the possible effect of interim operating covenants and restrictions
which would apply to the operations of the Trust and TCI during the period from
the signing of the Merger Agreement to the Effective Time. The Board of
Trustees also weighed and found reasonable the views of its management and
advisors that the various provisions were not preclusive of any opportunities
the Trust might encounter prior to the Effective Time.

ACQUISITION SAFEGUARDS. Taking into account the negative considerations set
forth below under "Possible Negative Considerations", the Board of Trustees
also endorsed the Incorporation Procedure and the Merger because it will afford
its investors certain safeguards against acquisition of TCI that, together with
certain provisions of Nevada law, are designed to (a) discourage unsolicited,
non-negotiated takeover attempts that can be unfair to stockholders, pressure
management and disrupt the operational continuity, long-range planning and
long-term growth of the business and (b) encourage persons who may wish to make
a bona fide offer to acquire TCI to negotiate in good faith and to submit a
proposal that is fair and equitable to TCI and all its stockholders. See "--
Management After Incorporation Procedure and Merger -- The Director Removal
Provision", "-- Stockholder-Management Relations -- The Business Combination
Provision", "-- Stockholder -- Management Relations -- The Evaluation
Provision", and "-- Amendment Provisions".

It has become common for third parties to accumulate substantial stock
positions in public companies as a prelude to proposing a takeover,
restructuring, sale of all or a substantial part of the target company or other
similar extraordinary corporate action, or simply as a means to put the target
company "in play". Such actions are often undertaken by the third party without
advance notice to or consultation with management of the target company. In
many cases, the purchaser seeks representation on the target company's board of
directors or trustees in order to increase the likelihood that its proposal
will be implemented by the company. If the target company resists the efforts
of the purchaser to obtain representation on the company's board, the purchaser
may commence a proxy contest to have its nominees elected to the board in place
of certain directors or the entire board. The purchaser may not be truly
interested in taking over and running the target company, but rather in using
the threat of a proxy fight or a bid to take over the company as a means of
forcing it to repurchase the purchaser's equity position at a substantial
premium over market price. This predatory practice has come to be known as
"greenmail".

The Board of Trustees believes that the imminent threat of removal of
management in such situations would severely curtail management's ability to
negotiate effectively with such purchasers and with any other third party
interested in acquiring the Trust. Management would be deprived of the time and
information necessary to evaluate the takeover proposal, to study alternative
proposals and to help ensure that the best price is obtained. Furthermore,
management could be faced with the following dilemma: either to pay greenmail
or to allow the Trust's business and management to be disrupted, perhaps
irreparably.

In addition to pressuring the management of the target company, unsolicited
tender offers and other non-negotiated acquisition proposals may involve terms
and be structured in ways that may be less favorable to all the stockholders
than those of a transaction negotiated and approved by the board of directors.
Although such proposals may be made at a price substantially above prevailing
market prices, they are sometimes made for less than all of the outstanding
shares of a company. As a result, stockholders may be forced either to
partially

- 31 -
<PAGE>

liquidate their investment under circumstances that may be disadvantageous to
them or to retain their investment as minority stockholders in an enterprise
that is controlled by persons whose objectives may be at odds with those of the
remaining minority stockholders and former management.

Unsolicited tender offers or other purchases of substantial blocks of
outstanding shares may also be followed by non-negotiated mergers or similar
transactions that involve the elimination of the remaining public stockholders
of the target company. Such transactions may not assure fair treatment of the
public stockholders remaining after the first step of the acquisition, because
the controlling stockholder's influence dominates the negotiations.

Such tender offers or purchase programs may also take the form of a two-
tiered offer in which cash is offered for a portion of a company's outstanding
shares, and, thereafter, securities that are or may be worth less than the cash
portion are offered for the remaining shares. Thus, stockholders are pressured
into selling as many of their shares as possible either to the purchaser or in
the open market without having the opportunity to make a considered investment
choice between remaining a stockholder of the company or disposing of their
shares. Two-tiered pricing tactics, as well as certain other unsolicited
proposals, may also be timed and designed to foreclose or minimize the
possibility of more favorable competing bids, which in turn may result in
stockholders losing the opportunity to consider alternative and possibly more
attractive proposals. In addition, persons who accumulate large blocks of stock
without negotiating with management through private or open market transactions
may achieve a position of substantial influence and control without paying
stockholders a fair control premium.

The Trustees recognize that acquisition proposals that have not been
negotiated with and approved by a company's board of directors do not always
have the unfavorable consequences or effects described above. See "-- Possible
Negative Considerations". However, it is the view of the Board of Trustees that
the potential disadvantages of non-negotiated acquisition proposals are
sufficiently great that it would be in the best interest of the Trust and its
shareholders to encourage potential acquirors to negotiate directly with the
Board of Directors of TCI and to submit proposals that are fair and equitable
to TCI and all of its stockholders. In the judgment of the Board of Trustees,
the proposed acquisition safeguards will help ensure that the Board of
Directors of TCI, if confronted by a proposal from a third party that has
acquired a significant block of shares of TCI common stock, will have
sufficient opportunity to review and analyze the proposal and appropriate
alternatives, and to act as it believes the best interest of all stockholders
dictates. The Trustees also believe that the changes resulting from the
Incorporation Procedure and the Merger should not prevent acquisition proposals
at a price reflective of a true value that are fair and equitable to all
stockholders. None of the proposed acquisition safeguards would prevent any
person from making a tender offer to TCI's stockholders or prevent any
stockholder from accepting such an offer.

The Incorporation Procedure and the Merger do not reflect any present
knowledge on the part of the Trustees of any pending, proposed or threatened
takeover, tender offer, leveraged buyout, proxy contest, sale of assets or
other similar transaction involving a change in control of the Trust. In
addition to the reasons discussed above, the Board of Trustees believes that
the acquisition safeguards are nonetheless necessary at this time because the
effectiveness of the acquisition safeguards depends on their being implemented
before an acquisition proposal is made. Otherwise, one of the purposes of the
acquisition safeguards -- to encourage potential acquirors to negotiate
directly with the Board of Trustees -- might be thwarted. In any event, it is
unlikely that the Trust would be able to implement the full range of
acquisition safeguards once a takeover attempt is already in progress. For
these reasons, the Board of Trustees believes that it would be beneficial to
move forward with the Incorporation Procedure and to merge with TCI which has
already adopted the acquisition safeguards.

GREATER LEGAL CERTAINTY. The Trustees urge shareholders to adopt the
Incorporation Procedure and the Merger because it will merge the business of
the Trust with TCI which has a more legally certain and predictable form of a
Nevada corporation. For the purpose of carrying on a business enterprise, the
business

- 32 -
<PAGE>

trust is an adaptation of the traditional common law trust. Business trusts are
entities created by agreement or under a governing document, such as the
Declaration of Trust, for which there is no prescribed form. Accordingly, the
powers, rights and obligations of the Trustees and shareholders of the Trust
are determined to a large extent by contractual interpretation, rather than by
reference to powers or privileges under any statute.

Unlike a corporation, many basic legal issues affecting a business trust are
not determined by a body of statutory law, but must be spelled out in the
declaration of trust. Subject to overriding principles of common law, the
declaration of trust serves as a substitute for a corporate statute. Thus,
management and stockholders of business trusts must look to the trust
instrument or common law to determine questions which would usually be answered
by a corporation statute if that form were selected. On the other hand, state
corporation statutes generally provide detailed and comprehensive rules
concerning corporate organization, the composition, election, and duties of
boards of directors and corporate officers, the form and issuance of equity
shares (including voting, dividend, and merger rights), rules on meetings,
mergers, reorganizations, dissolutions, and derivative actions. Moreover, many
matters not detailed in the statutes are usually covered by a well developed
body of case law.

Although the business trust form is regarded as legal and valid in
California, the jurisdiction of organization of the Trust, no substantial body
of law has developed concerning the legal status, rights, obligations and
liabilities of business trusts and their trustees and stockholders, and there
is a degree of uncertainty as to the legal principles applicable to business
trusts under the laws of California. For example, although the trustees of a
business trust are clearly fiduciaries owing a duty as such to the trust and
its shareholders, it might be asserted that their fiduciary duties are governed
by principles of law and equity applicable to traditional common law trusts,
rather than by the standards of care, loyalty and business judgment applied to
the directors of a corporation and by the standards defined in the governing
trust documents.

By contrast, the status, rights, obligations and liabilities of the
stockholders, officers and directors of a corporation are governed not only by
a corporation's charter documents, but also by comprehensive statutes and a
body of case law interpreting those statutes and their application to a
corporation and its charter documents. The existence of a more well-defined
body of law allows a corporation to plan the legal aspects of its future
activities with more certainty and predictability than currently exists with
respect to the Declaration of Trust and the less well-defined provisions of law
currently applicable to the operations of a business trust. Additionally, state
law governing qualification of an out-of-state business entity to transact
business is generally clearer for corporations than for business trusts.
Furthermore, corporations are far more numerous than business trusts and are
more familiar to investors or persons doing or proposing to do business with a
company.

The Trustees have unanimously approved the Incorporation Procedure and the
Merger with TCI, a Nevada corporation, because, among other reasons, the
Trustees believe that the Nevada Revised Statutes, as amended ("NRS") set forth
modern statutes that will meet the business needs of the Trust once the
Incorporation Procedure and the Merger are effected. The NRS is regarded as an
extensive and modern corporate statute. In adopting the NRS, the legislature in
Nevada has demonstrated an ability and a willingness to act quickly and
effectively to meet businesses' changing needs. For many years, Nevada has
followed a policy of encouraging incorporation in that state and, in
furtherance of that policy, has adopted comprehensive, modern, flexible
corporate statutes (very similar to those in effect in Delaware) that are
periodically updated and reviewed to meet changing business needs. The Board of
Trustees believes that the Articles of Incorporation of TCI, coupled with the
existence of a growing body of Nevada corporate law, will allow the planning of
future activities with more certainty and predictability than presently exists
with respect to the Declaration of Trust and the less-well defined provisions
of law currently applicable to the operations of a business trust. This
certainty and predictability could be beneficial in attracting and retaining
qualified management for TCI, in part because Nevada corporate law provides,
among other things, for a greater degree (and greater clarity) of
indemnification of directors and officers than is found with respect to
California business trusts. The Trust will also avoid significant annual
franchise taxes assessed in certain other states of incorporation. Further,
TCI, as a corporation incorporated in Nevada, is not be required to pay annual
franchise or income taxes. The only annual corporate fee in Nevada which TCI is
required to pay is an $85.00 filing fee.

- 33 -
<PAGE>

ALL OF THE INDEPENDENT TRUSTEES OF THE TRUST RECOMMEND THAT THE TRUST
STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE
INCORPORATION PROCEDURE AND MERGER AND THE TRANSACTIONS CONTEMPLATED THEREBY.

OPINIONS OF FINANCIAL ADVISORS

TCI

TCI has retained Wedbush Morgan Securities (the "TCI Financial Advisor") to
act as its independent financial advisor with respect to the Merger. The TCI
Financial Advisor delivered its written opinion to the Board of Directors to
the effect that as of September 21, 1998 the Exchange Ratio is fair to TCI and
the holders of shares of TCI common stock, from a financial point of view.

A copy of the full text of the opinion of the TCI Financial Advisor, dated
as of September 21, 1998, which sets forth the assumptions made, matters
considered, and limitations on the review undertaken in connection with the
opinion, is attached hereto as Appendix C and is incorporated herein by
reference with the consent of the TCI Financial Advisor. This summary
discussion of the opinion of the TCI Financial Advisor is qualified in its
entirety by reference to the full text of the opinion. The engagement of the
TCI Financial Advisor and its opinion are for the benefit of the Board of
Directors of TCI and its opinion was rendered to the Board of Directors of TCI
in connection with its consideration of the Merger. The TCI Financial Advisor
opinion is directed only to the fairness of the Exchange Ratio from a financial
point of view to TCI and the holders of shares of TCI common stock and does not
address any other aspect of the Merger. The opinion is not intended to, and
does not constitute, a recommendation to any holder of shares of TCI common
stock as to whether such stockholder should vote for the Merger at the TCI
special meeting.

HOLDERS OF SHARES OF TCI COMMON STOCK ARE URGED TO READ THE OPINION OF THE
TCI FINANCIAL ADVISOR IN ITS ENTIRETY.

Analyses Conducted by the TCI Financial Advisor. In arriving at its opinion,
the TCI Financial Advisor reviewed and analyzed, among other things: (1) a
draft of the Merger Agreement and specific terms of the Merger, (2) certain
publicly available business and financial information relating to TCI and the
Trust which the TCI Financial Advisor deemed to be relevant, (3) certain
historical and projected financial and operating information with respect to
the business and operations of TCI and the Trust furnished to the TCI Financial
Advisor by the management of TCI and the Trust, (4) appraisals of real estate
assets of both TCI and CMET as prepared by the firm Marshall & Stevens
Incorporated ("Marshall & Stevens"), (5) the market prices, trading history,
and valuation multiples for the shares of TCI common stock and the Trust shares
and a comparison of them relative to each other, as well as with those of
certain publicly traded companies that the TCI Financial Advisor deemed to be
relevant, (6) the proposed financial terms of the Merger and a comparison of
them with the terms of certain other transactions which the TCI Financial
Advisor deemed to be relevant, and (7) other such financial studies and
analyses and such other financial, economic and market criteria as the TCI
Financial Advisor deemed appropriate in arriving at its opinion. In addition,
the TCI Financial Advisor had discussions with the management of TCI and the
Trust concerning their respective businesses, operations, assets, liabilities,
financial conditions and their assessment of the potential cost savings,
operating synergies, revenue enhancements and strategic benefits of the Merger.

The TCI Financial Advisor relied, without any independent evaluation or
appraisal, on the Marshall & Stevens appraisals. The TCI Financial Advisor also
accepted, without independent investigation, supplemental information and
suggested adjustments recommended by TCI and the Trust. The TCI Financial
Advisor understood that while Marshall & Stevens did not reissue its
appraisals, Marshall & Stevens had been informed of this information and raised
no objections to the adjustments.

- 34 -
<PAGE>

In arriving at its opinion, the TCI Financial Advisor assumed and relied
upon the accuracy and completeness of all financial and other information and
data used by the TCI Financial Advisor without assuming any responsibility for
independent investigation and verification of such information. The TCI
Financial Advisor further relied upon the assurances of the management of both
TCI and the Trust that they were not aware of any facts or circumstances that
would make such information inaccurate or misleading. With respect to the
financial projections of TCI and the Trust, the TCI Financial Advisor assumed
that such projections had been reasonably prepared in good faith on a basis
reflecting the best currently available estimates and judgments of the
respective management of TCI and the Trust regarding, among other items,
management's assessment regarding the lack of projected cost savings, operating
synergies, revenue enhancements expected to result from a combination of the
businesses, and that TCI, the Trust and the combined company will perform
substantially in accordance with such projections. The TCI Financial Advisor
further assumed that all conditions of the Merger Agreement will be satisfied
and not waived.

The opinion of the TCI Financial Advisor relates to the relative values of
TCI and the Trust. The TCI Financial Advisor did not express any opinion as to
what the prices of the shares of TCI common stock will trade or otherwise be
transferable subject to the Merger. The TCI Financial Advisor did not make any
physical inspection of the prepared or assets of TCI or the Trust, or make any
evaluations or appraisals of the assets or liabilities of TCI or the Trust. The
TCI Financial Advisor was not requested to consider, and the opinion does not
address, the relative merits of the Merger as compared to any alternative
business strategies that might exist for TCI or any other transaction in which
TCI might engage. The TCI Financial Advisor did not express any opinion
regarding the tax or accounting consequences of the Merger to TCI or the
stockholders of TCI.

The TCI Financial Advisor only participated in the negotiation of the
Exchange Ratio and did not participate in any other aspect of the Merger. The
TCI Financial Advisor and the Trust Financial Advisor together arrived at the
Exchange Ratio of 1.181 shares of TCI common stock for each Trust share. The
TCI Financial Advisor was not authorized to solicit, and did not solicit,
interests from any third party.

The opinion of the TCI Financial Advisor is based upon financial, economic,
market and other conditions as in effect on, and the information made available
to the TCI Financial Advisor as of, September 21, 1998. Events occurring after
September 21, 1998 could materially affect the assumptions used in preparing
the opinion. The TCI Financial Advisor did not update, reaffirm or revise the
opinion or otherwise comment upon any events occurring after September 21,
1998.

The TCI Financial Advisor was selected to render its opinion as to the
fairness of the Exchange Ratio from a financial point of view based upon its
qualifications, expertise and reputation. The TCI Financial Advisor is an
investment banking firm and member of the New York Stock Exchange and other
principal stock exchanges in the United States, and is regularly engaged in the
valuation of businesses and securities in connection with mergers and
acquisitions, underwritings, sales and distributions of listed and unlisted
securities, private placements and other transactions.

Summary of Analyses of the TCI Financial Advisor. While the following
summaries describe the principal elements of the analyses and examinations that
the TCI Financial Advisor performed in arriving at its opinion, they are not a
comprehensive description of all analyses and examinations actually conducted
by the TCI Financial Advisor. The preparation of a fairness opinion involves
various determinations of the most appropriate and relevant methods of
financial analysis and the application of those methods to the particular
circumstances and, therefore, such an opinion is not susceptible to partial
analysis or summary description. Each of the analyses conducted by the TCI
Financial Advisor was carried out in order to provide a different perspective
on the transaction and to add to the total mix of information available. The
TCI Financial Advisor did not form a conclusion as to whether any individual
analysis, considered alone, supported or failed to support an opinion as to
fairness from a financial point of view. Rather, in reaching its conclusion,
the TCI Financial Advisor considered the results of the analyses as a whole and
did not place particular reliance or weight on any individual factor.
Therefore, selecting portions of the analyses and the factors considered,

- 35 -
<PAGE>

without considering all such analyses and factors, would create an incomplete
or misleading view of the valuation process underlying its opinion. The
valuations resulting from any particular analysis described herein should not
be taken to be the TCI Financial Advisor's view of the actual value or
predicted future value of the shares of TCI common stock or the Trust shares.

In performing its analyses, the TCI Financial Advisor made numerous
assumptions with respect to industry performance and general business and
economic conditions such as industry growth, inflation, interest rates and
various other matters, many of which are beyond the control of TCI, the Trust
and the TCI Financial Advisor. Any estimates contained in the TCI Financial
Advisor's analyses are not necessarily indicative of actual values or future
results, which may be significantly more or less favorable than indicated by
such analyses. Such analyses were prepared solely as part of the TCI Financial
Advisor's analysis of the fairness of the Exchange Ratio to TCI's stockholders.
Additionally, estimates of the values of the business and securities do not
purport to be appraisals of the assets or market values of TCI or the Trust, or
their respective securities, nor do they necessarily reflect the prices at
which such businesses securities may actually be sold.

The following is a summary of the material financial analyses performed by
the TCI Financial Advisor in connection with its opinion:

Summary of the Proposed Transaction: The TCI Financial Advisor reviewed the
terms of the Merger, including the Exchange Ratio and the implied aggregate and
per share transaction value. Based on the Exchange Ratio and TCI's closing
stock price of $13.25 on September 21, 1998, the TCI Financial Advisor
calculated an implied aggregate transaction value of approximately $62.2
million, and an implied transaction value per share of TCI common stock of
approximately $15.50.

Historical Trading and Exchange Ratio Analysis. The TCI Financial Advisor
analyzed the ratios of closing prices per share of the Trust shares to shares
of TCI's common stock as reported on the NASDAQ National Market and the New
York Stock Exchange respectively, during various periods. The TCI Financial
Advisor observed that for the 30 trading day period ending September 21, 1998,
the average ratio of closing stock prices of TCI to the Trust was 1.221. For
the 50 day trading period ending September 21, 1998, the average ratio of
closing stock prices of TCI to the Trust was 1.190. For the 90 day trading
period ending September 21, 1998, the average ratio of closing stock prices of
TCI to the Trust was 1.149.

Analysis of Selected REIT Merger Transactions. The TCI Financial Advisor
reviewed certain publicly available information regarding selected merger and
acquisition transactions: (1) involving REITS concentrating in a diversified
portfolio of properties and (2) with similar total asset values. The selection
of the comparable transactions involved complex considerations and judgments
concerning similarities and differences in financial, operational and other
characteristics that could affect the acquisition value of potentially
comparable REITs. None of the REITs included in the analysis of selected merger
transactions were identical to TCI and none of the transactions were identical
to the Merger.

The transactions deemed appropriate for comparison (the "Comparison Merger
Transactions") involved the following sets of institutions (identified by
acquirer/acquired): United Dominion Realty / South West Property Trust, Camden
Property Trust / Paragon Group, Inc., Equity Residential Properties / Wellsford
Residential Property, Post Properties, Inc. / Columbus Realty Trust, Equity
Residential Properties / Evans Withycombe Residential, Apartment Investment /
Ambassador Apartments, Inc., Camden Property Trust / Oasis Residential, Inc.,
Bay Apartment Communities / Avalon Properties, Inc., Security Capital Pacific
Trust / Security Capital Atlantic, Inc.

For each of the Comparison Merger Transactions, the TCI Financial Advisor
analyzed the consideration paid relative to the book value of the stockholders'
equity of the target and the last twelve months (LTM) Funds From Operations
(FFO -- defined as net income, plus depreciation and amortization, minus any
gains and losses from property sales and extraordinary items) of the target.
The TCI Financial Advisor used this analysis to evaluate the consideration paid
for the Trust relative to the book value of stockholders' equity and LTM FFO of
the Trust.

- 36 -
<PAGE>

Discounted Cash Flow Analysis. The TCI Financial Advisor performed several
variations of discounted future Funds Available for Distribution (FAD)
valuation methods in its evaluation of the Exchange Ratio. Upon consideration
of the historical FAD to the common stockholders for each of TCI and the Trust,
the uncertainty involved in projecting the future FAD for each of these
companies, and the lack of historical correlation between the public market
valuations of each of these companies and their respective FAD, the TCI
Financial Advisor deemed the discounted future FAD valuation methodology to be
non-meaningful in the evaluation of the Exchange Ratio.

Comparable REIT Analysis. Using publicly available information, the TCI
Financial Advisor compared certain financial, operating and stock market data
of TCI with similar data of selected publicly traded companies in the real
estate industry of a size considered by the TCI Financial Advisor to be
appropriate for comparison to TCI. Although such REITs were considered similar
to TCI, none of them has the same management, make up, and assets as TCI.

The TCI Financial Advisor considered the following REITs appropriate for
comparison (the "Comparison REITs") to TCI: Banyan Strategic Realty Trust
(BSRTS), BRT Realty Trust (BRT), Camden Property Trust (CPT), Colonial
Properties Trust (CLP), Glenborough Realty Trust, Inc. (GLB), Mid-America
Apartment Communities Inc. (MAA), National Income Realty (NIRTS), Pacific Gulf
Properties Inc. (PAG), Sizeler Property Investors (SIZ), Town & Country Trust
(TCT), Walden Residential Properties, Inc. (WDN).

For each of the Comparison REITs, the TCI Financial Advisor analyzed the
market value of stockholders' equity relative to the book value of the
stockholders' equity of the Comparison REIT and the LTM FFO of the REIT. The
TCI Financial Advisor used this analysis to evaluate the consideration paid for
the Trust relative to the book value of stockholders' equity and LTM FFO of the
Trust.

Pro Forma Merger Analysis/Contribution Analysis. Based on projections and
various other assumptions provided by TCI and the Trust, including estimated
cost savings and revenue enhancements expected to result from the Merger, the
TCI Financial Advisor and analyzed the pro forma impact of the Merger on a
variety of projected financial measures including, among others, the Trust's
EPS, book value per share and tangible book value per share during the calendar
years 1999 through 2000 relative to TCI's on a stand-alone basis.

The TCI Financial Advisor also performed a pro forma sensitivity analysis by
varying many of the underlying assumptions of the analysis including, among
others, the cost savings, revenue enhancement, and growth estimates of TCI, the
Trust and the combined company as part of the analysis of the estimated pro
forma effect of the Merger.

The TCI Financial Advisor examined the estimated relative contributions of
the TCI and the Trust to the pro forma financial projections for the combined
entity. Among the considerations were the relative contributions of each to the
estimated total assets of the combined entity, the estimated net tangible book
value of the combined entity, the estimated stockholders' equity of the
combined entity, the estimated future FFO of the combined entity, and the
estimated future FAD of the combined entity. The relative contribution of TCI
and the Trust the pro forma financial projections of the combined entity
relative to the percentage of the common equity of the combined entity that
would be owned by the stockholders of TCI and the Trust, given the Exchange
Ratio, was used by the TCI Financial Advisor in evaluating the fairness of the
Exchange Ratio.

Market Value Appraisal Analysis. The TCI Financial Advisor analyzed the
respective market values of TCI and the Trust properties based on the report of
the independent appraisal firm, Marshall & Stevens, who had been engaged by
TCI. The TCI Financial Advisor also accepted, without independent
investigation, supplemental information and suggested adjustments recommended
by TCI and the Trust to the Marshall & Stevens appraisals. The TCI Financial
Advisor understood that while Marshall & Stevens did not reissue its

- 37 -
<PAGE>

appraisals, Marshall & Stevens has been informed of this information and the
suggested adjustments and has raised no objections. A net asset value was
calculated by taking the appraised value of the respective properties of TCI
and the Trust plus all other assets, less the respective liabilities of TCI and
the Trust divided by the number of outstanding shares of each entity. The TCI
Financial Advisor subsequently compared the Net Asset Value per share of TCI
versus the Trust as a factor in evaluating the fairness of the Exchange Ratio.
The TCI Financial Advisor did not undertake any obligation independently to
verify the underlying assumptions made in connection with the Marshall &
Stevens appraisals.

TCI Financial Advisor Fee. Pursuant to the terms of the agreement between
TCI and the TCI Financial Advisor, TCI has paid the TCI Financial Advisor a fee
of $300,000, 12.5% of which was payable upon execution of the agreement between
TCI and the TCI Financial Advisor and the remainder of which became payable at
the time the TCI Financial Advisor notified TCI that it was prepared to deliver
to the Board of Directors of TCI its opinion as to the fairness of the Exchange
Ratio, without disclosing the conclusion reached therein. TCI has also agreed
to reimburse the TCI Financial Advisor for its reasonable out-of-pocket
expenses incurred in connection with its engagement and to indemnify the TCI
Financial Advisor and its employees, agents, officers, attorneys and
stockholders and any person who controls or is deemed to control the TCI
Financial Advisor against certain liabilities, including liabilities under the
federal securities laws. In the ordinary course of business, the TCI Financial
Advisor and its affiliates may actively trade the equity securities of TCI
and/or the Trust for their own account and for accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
The TCI Financial Advisor has not been previously engaged to provide investment
banking services to TCI or the Trust.

Conclusion. The TCI Financial Advisor concluded that, as of September 21,
1998, the Exchange Ratio is fair, from a financial point of view, to the
holders of shares of TCI common stock.

THE TRUST

The Trust has retained Sutro & Co. (the "Trust Financial Advisor") to act as
its independent financial advisor with respect to the Incorporation Procedure
and the Merger. The Trust Financial Advisor delivered its written opinion to
the Board of Trustees to the effect that as of September 21, 1998 the Exchange
Ratio is fair to the Trust and the holders of Trust shares, from a financial
point of view.

A copy of the full text of the opinion of the Trust Financial Advisor, dated
as of September 21, 1998, which sets forth the assumptions made, matters
considered, and limitations on the review undertaken in connection with the
opinion, is attached hereto as Appendix D and is incorporated herein by
reference. This summary discussion of the opinion of the Trust Financial
Advisor is qualified in its entirety by reference to the full text of the
opinion. The engagement of the Trust Financial Advisor and its opinion are for
the benefit of the Board of Trustees and its opinion was rendered to the Board
of Trustees in connection with its consideration of the Incorporation Procedure
and the Merger. The Trust Financial Advisor opinion is directed only to the
fairness of the Exchange Ratio from a financial point of view to the Trust and
the holders of Trust shares and does not address any other aspect of the
Incorporation Procedure and the Merger. The opinion is not intended to, and
does not constitute, a recommendation to any holder of Trust shares as to
whether such stockholder should vote for the Incorporation Procedure and the
Merger at the Trust special meeting.

HOLDERS OF TRUST SHARES ARE URGED TO READ THE OPINION OF THE TRUST FINANCIAL
ADVISOR IN ITS ENTIRETY.

The Trust Financial Advisor was authorized to undertake studies to enable it
to render its opinion, regardless of their effect on the outcome of the
opinion. No limitations were imposed by the Trust with respect to the scope of
the investigation made or procedures followed by the Trust Financial Advisor in
rendering its opinion. In performing its evaluation and rendering its opinion,
the Trust Financial Advisor relied upon the accuracy and completeness of all
information provided to it, whether obtained from public or private sources,
and did not attempt to independently verify such information. The Trust
Financial Advisor also took into

- 38 -
<PAGE>

account its assessment of general economic, market and financial conditions as
they existed and could be evaluated as of the date of its opinion, as well as
its experience in similar transactions and securities valuation generally. The
Trust Financial Advisor did not make any independent appraisals of the assets
or liabilities of the Trust or TCI. The analysis was prepared with information
available as of the date of the opinion. In general, historical financial
information was analyzed for the periods ending no later than June 30, 1998.

On August 4, 1998, representatives of the Trust Financial Advisor met with
the Board of Trustees to review the methods employed to determine the values of
TCI and the Trust. Thereafter, on September 10, 1998, the Trust Financial
Advisor met with the Board of Directors of TCI to share with them their
analyses of the respective values of both companies. On September 21, 1998, the
Trust Financial Advisor informed the Board of Trustees that, in its opinion, an
exchange ratio of 1.181 shares of TCI common stock for each Trust share was
fair and that as of the date thereof, the Merger is fair to the Trust and the
holders of Trust shares from a financial point of view. The Trust Financial
Advisor and the TCI Financial Advisor together arrived at the Exchange Ratio of
1.181 shares of TCI common stock for each Trust share.

Analyses Conducted by the Trust Financial Advisor. In conducting its
analyses and in preparing the opinion that the Exchange Ratio is fair from a
financial point of view to the Trust and the holders of the Trust shares, the
Trust Financial Advisor, among other things, reviewed and analyzed (1) annual
reports and reports on Form 10-K for the years ended December 31, 1996 and
December 31, 1997 for the Trust and TCI, (2) quarterly reports on Form 10-Q for
the six month period ended June 30, 1998 for the Trust and TCI, (3) certain
internal information, primarily financial in nature (including analytical
models, projections, forecasts, estimates and analyses) prepared by or on
behalf of the management of the Trust and TCI, including financial projections
covering the years 1998 through 2002 for both the Trust and TCI, (4) appraisals
of the real properties of both the Trust and TCI prepared by Marshall & Stevens
dated August 13, 1998 with a valuation date of July 1, 1998, (5) certain other
publicly available business, financial and other information concerning the
Trust and TCI and (6) such other information which the Trust Financial Advisor
deemed to be relevant to provide the fairness opinion. In the course of the
Trust Financial Advisor's engagement, the Trust Financial Advisor held
discussions with the senior management of the Trust and TCI concerning the
historical, current and projected future operations, business plans, financial
conditions and results, and prospects of both the Trust and TCI. The Trust
Financial Advisor has not, however, independently verified the accuracy or
completeness of the appraisals prepared by Marshall & Stevens referenced herein
or independently appraised any particular assets or conducted any inspection of
the properties of the Trust or TCI.

The Trust Financial Advisor is in the investment banking business and is
regularly engaged in the evaluation of capital structures, the valuation of
businesses and their securities in connection with mergers and acquisitions,
firm commitment underwritings, secondary distributions of listed and unlisted
securities, private placements, financial restructurings and other financial
services. The Board of Trustees of the Trust selected the Trust Financial
Advisor based on its review of these qualifications and advised the Trust
Financial Advisor that in connection with the Merger shareholders of the Trust
would receive 1.181 shares of TCI's common stock per share of the Trust's
shares of beneficial interest. The Trust Financial Advisor has not been
previously engaged to provide investment banking services to the Trust or TCI.
The Trust Financial Advisor will receive a fee for delivering its fairness
opinion. The Trust has agreed to indemnify the Trust Financial Advisor against
certain liabilities arising out of or in connection with the services rendered
by the Trust Financial Advisor under such engagement.

Conclusion. The Trust Financial Advisor concluded that, as of September 21,
1998, the Exchange Ratio is fair, from a financial point of view, to the
holders of Trust shares.

POSSIBLE NEGATIVE CONSIDERATIONS

In addition to the risk factors discussed above under "Risk Factors",
shareholders of the Trust should take into account the following possible
negative considerations concerning the acquisition safeguards described

- 39 -
<PAGE>

above in evaluating the proposed Incorporation Procedure and the Merger as a
whole. Notwithstanding the benefits of the Incorporation Procedure and the
Merger anticipated by the Board of Trustees, shareholders should recognize that
the acquisition safeguards could discourage a future attempt to acquire control
of TCI that is not presented to and approved by the Board of Directors, but
which some of TCI's stockholders might believe to be in their best interest or
which might offer stockholders a premium for their shares over prevailing
market prices. As a result, stockholders who might desire to participate in
such a transaction may not have an opportunity to do so, and the Incorporation
Procedure and the Merger should therefore be viewed as limiting stockholders'
rights. Furthermore, unsolicited proposals are not necessarily less
advantageous than transactions negotiated with management.

Consummation of the Incorporation Procedure and the Merger could have the
effect of making it more difficult for holders of even a majority of the
outstanding shares of TCI (i) to obtain control either directly by making a
tender offer for the outstanding stock of TCI (see "-- Stockholder-Management
Relations -- The Business Combination Provision") or by soliciting proxies or
consents (see "-- Stockholder-Management Relations -- The Consent Provision")
for use at a special or regular meeting of TCI's stockholders (see "--
Stockholder-Management Relations -- The Stockholder Meeting Provision") or
(ii) to change the composition of the Board of Directors to remove incumbent
management (see "-- Management after Incorporation Procedure and Merger -- The
Director Removal Provision"). Accordingly, the Incorporation Procedure and the
Merger, together with the protection afforded by the collective beneficial
ownership of approximately 51.7% of the outstanding shares of TCI common stock
(upon consummation of the Incorporation Procedure and the Merger) by entities
with which TCI's executive officers are affiliated could entrench the TCI Board
of Directors, even in circumstances where a majority of the stockholders who
are not affiliated with management may be dissatisfied with the performance of
the incumbent Directors or otherwise desire to make changes.

With respect to (1) certain mergers and other related transactions and (2)
certain amendments to TCI's Articles of Incorporation, the acquisition
safeguards will also effectively give veto power to holders of more than one-
third and one-fifth, respectively, of the outstanding voting shares of TCI,
even if such mergers or amendments were desired by a majority of the
stockholders. At present, the Trustees are aware of one shareholder, American
Realty Trust, Inc. ("ART") (which is an affiliate of BCM), who holds
approximately 40.9% of the outstanding shares of the Trust and would hold
approximately 36.8% of the outstanding common stock of TCI if the Incorporation
Procedure and the Merger are effected. As of November 30, 1998, ART owned
approximately 40.9% of the outstanding shares of the Trust and approximately
31.0% of the outstanding shares of TCI.

The cumulative effect of the various changes resulting from the
Incorporation Procedure and the Merger might also discourage some persons from
investing in or acquiring a large block of shares of TCI common stock by making
it more difficult for a substantial stockholder to exercise control, to
complete an acquisition of TCI or to negotiate a repurchase of such
stockholder's shares by TCI. Stockholders may also have less opportunity to
take advantage of temporary increases in the market price of TCI's shares that
might be caused by takeover speculation.

The Trustees have considered these potential disadvantages and differences
and have concluded that the benefits of the acquisition safeguards included in
the Incorporation Procedure and the Merger outweigh these possible
disadvantages. Furthermore, the Trustees have considered the negotiated nature
of the Incorporation Procedure and the Merger and are satisfied that the
Incorporation Procedure and the Merger are in the best interests of its
shareholders.

CERTAIN POTENTIAL CONFLICTS OF INTEREST

The Board of Directors of TCI and the Board of Trustees of the Trust have
both unanimously approved the Merger. While the Board of Trustees believes that
the Merger is in the best interest of the Trust and its

- 40 -
<PAGE>

shareholders, certain members of BCM's management could benefit from the
Incorporation Procedure and the Merger and, therefore, may be viewed as having
a conflict of interest.

Mr. Gene E. Phillips served as a Trustee of the Trust until December 31,
1992, and as a director of BCM until December 22, 1992 and as Chief Executive
Officer of BCM until September 1, 1992. Although Mr. Phillips no longer serves
as an officer or director of BCM or as a Trustee of the Trust, he serves as a
representative of a trust established for the benefit of his children, which
trust owns BCM, and, in such capacity, Mr. Phillips has substantial contact
with the management of BCM and input regarding its performance of advisory
services for the Trust and TCI. As such, Mr. Phillips or his children could
benefit financially from shareholder approval of, and may be viewed as having a
conflict of interest in connection with, the Incorporation Procedure and the
Merger.

If the Incorporation Procedure and the Merger are approved, advisory fees
paid to BCM, as advisor, would not be subject to the operating expense
limitation currently contained in the Declaration of Trust, although a
substantially similar provision is included in the current TCI Advisory
Agreement, as discussed under "Business and Properties of TCI -- The TCI
Advisory Agreement" and "Proposed Incorporation Procedure and Merger --
Business Activities After Incorporation Procedure and Merger". See also
"Business and Properties of the Trust -- Certain Business Relationships and
Related Party Transactions". Notwithstanding, the current Board of Directors of
TCI does not intend to increase the compensation level of BCM from the level
included in the current TCI Advisory Agreement.

Additionally, in the future, BCM may benefit from the elimination of certain
limitations on investments currently applicable to the Trust which would not
exist upon consummation of the Incorporation Procedure and the Merger. The
Articles of Incorporation of TCI permit it to engage in a larger class of
transactions, including transactions with related parties, than is currently
permitted by the Declaration of Trust. However, pursuant to the terms of court-
approved settlements in the Olive Litigation, certain related party
transactions prior to April 28, 1999, will require the unanimous approval of
TCI's Board of Directors.

More specifically, court-approved settlements in the Olive Litigation
currently restrict the activities of the Board of Trustees of the Trust and
similarly restrict the Board of Directors of TCI upon consummation of the
Merger. Those settlements require that the Board of Trustees unanimously
approve certain related party transactions. Additionally, related party
transactions are to be discouraged and may only be entered into in exceptional
circumstances and after a determination by the Board of Trustees that (i) the
transaction is in the best interest of the Trust and (ii) no other opportunity
exists that is as good as the opportunity presented. The Olive Amendment also
provided for the addition of four new unaffiliated members to the Board of
Trustees and requires that all Trust shares owned by Gene E. Phillips or any of
his affiliates must be voted at all stockholder meetings of the Trust held
until April 28, 1999 in favor of those four new unaffiliated members. The Olive
Amendment also required that, until April 28, 1999, all Trust shares owned by
Mr. Phillips or his affiliates in excess of forty percent (40%) of the Trust's
outstanding shares shall be voted in proportion to the votes cast by all non-
affiliated stockholders of the Trust.

The foregoing requirements also apply to TCI until April 28, 1999, and will
require the unanimous approval of the Board of Directors rather than the Board
of Trustees. Likewise, the Board of Directors is required to discourage related
party transactions. See "Business and Properties of the Trust -- Involvement in
Certain Legal Proceedings" for a more complete description of the Olive
Litigation and the resulting Olive Modification and Olive Amendment. After
April 28, 1999, however, the Board of Directors will have greater discretion as
to related party transactions, subject to the limitations set forth in the
Articles of Incorporation of TCI. See "Proposed Incorporation Procedure and
Merger -- Business Activities after Incorporation Procedure and Merger --
Restrictions on Related-Party Transactions". The Articles of Incorporation of
TCI would also limit the liability of Directors to a greater degree than the
Declaration of Trust, as discussed more fully below under "Proposed
Incorporation Procedure and Merger -- Liability of Certain Persons -- The
Management Liability Provision".

- 41 -
<PAGE>

THE CONVERSION OF SHARES

As part of the Merger, existing shareholders of the Trust would
automatically become stockholders of TCI by the conversion of all shares of CME
Corporation for newly issued shares of TCI common stock on the basis of 1.181
shares of TCI common stock for each Trust share (the "Conversion"). For reasons
discussed below under "Proposed Incorporation Procedure and Merger --
Comparison of the Securities of TCI and the Trust --Common Equity", each new
share of TCI common stock would have $0.01 par value, unlike each existing
Trust share, which has no par value.

The Conversion would result in the issuance by TCI of a number of shares of
TCI common stock equal to 1.181 multiplied by the total number of Trust shares
outstanding immediately before commencement of the Incorporation Procedure and
the Merger. Based upon the 4,017,150 Trust shares outstanding on November 30,
1998, the Conversion would result in issuance of approximately 4,744,254 shares
of TCI common stock.

The Conversion will affect the proportionate equity interest of the Trust's
shareholders and TCI's stockholders. Upon consummation of the Incorporation
Procedure and the Merger, each outstanding share of TCI common stock will be
entitled to one vote at each meeting of stockholders, as is the case with each
currently outstanding Trust share. However, the aggregate number of shares to
be issued to shareholders of the Trust upon Conversion is 4,744,254, or
approximately 55% of the total number of issued and outstanding shares of TCI
common stock. Similarly, the Conversion may have a dilutive effect on net
income per share in the future.

THERE CAN BE NO ASSURANCE THAT THE MARKET PRICE PER SHARE OF TCI COMMON
STOCK AFTER THE CONVERSION WILL BE EQUAL TO THE MARKET PRICE PER SHARE OF SUCH
STOCK BEFORE THE CONVERSION OR THAT THE MARKETABILITY OF TCI COMMON STOCK WILL
REMAIN CONSISTENT WITH THE MARKETABILITY OF SUCH STOCK BEFORE THE CONVERSION.

Prices for TCI common stock will be determined in the marketplace and may be
influenced by many factors, including investor perception of the changes
resulting from the Incorporation Procedure and the Merger.

Assuming that the proposed Incorporation Procedure and the Merger are
approved, the Trust's shareholders will be furnished with the necessary
materials and instructions to exchange their certificates representing the
existing Trust shares for new certificates representing shares of TCI common
stock.

ADOPTION AND APPROVAL OF THE INCORPORATION PROCEDURE AND THE MERGER WILL
SIGNIFICANTLY AFFECT CERTAIN RIGHTS OF SHAREHOLDERS OF THE TRUST. ACCORDINGLY,
SHAREHOLDERS ARE URGED TO READ CAREFULLY THIS ENTIRE JOINT PROXY
STATEMENT/PROSPECTUS AND THE APPENDICES HERETO AND TO CONSIDER CAREFULLY THE
DIFFERENCES BETWEEN THEIR RIGHTS AS SHAREHOLDERS OF THE TRUST AND AS
STOCKHOLDERS OF TCI BEFORE VOTING.

COMPARISON OF PRINCIPAL DIFFERENCES BETWEEN THE TRUST AND TCI

If the proposed Incorporation Procedure and the Merger are approved and
consummated, the business of the Trust will be conducted by TCI, a Nevada
corporation, rather than by a business trust organized under the laws of the
State of California. The rights and powers of the Trust and its shareholders
and Trustees currently are governed primarily by the Declaration of Trust and
the Trustees' Regulations and, to a lesser extent, by California business trust
law, while those of TCI and its stockholders and Directors are be governed by
its Articles of Incorporation and Bylaws and by Nevada corporate law. Set forth
below is a comparison of the principal differences between those respective
rights and powers. Although the Trustees believe that the following discussion
sets forth the material differences between the rights of shareholders of the
Trust and stockholders of TCI, the comparison does not purport to be a complete
statement of all differences and is qualified in its entirety by reference to
the Articles of Incorporation and Bylaws of TCI and the Declaration of Trust
and the Trustees' Regulations. For further information, stockholders may refer
to the full text of TCI's Articles of Incorporation and Bylaws, and compare
them with the Declaration of Trust and the Trustees'

- 42 -
<PAGE>

Regulations, each of which has been filed or incorporated by reference as an
exhibit to the Registration Statement.

For convenience and ease of reference, comparisons between the Trust and TCI
are set forth as follows: "Management after Incorporation Procedure and Merger"
discusses the role of TCI's advisor and the constitution of TCI's Board of
Directors; "Liability of Certain Persons" addresses exculpation of trustees and
directors, indemnification of trustees, directors and officers and shareholder
liability; "Business Activities after Incorporation Procedure and Merger"
compares business objectives and restrictions on certain activities and related
party transactions; "Comparison of the Securities of TCI and the Trust", in
addition to comparing the Trust shares with the TCI common stock, outlines
dissenters' rights, preferred stock, listing with the NASDAQ and the NYSE, and
the elimination of certain restrictions on ownership and transfer of shares;
"Stockholder-Management Relations" describes the mechanics of stockholder
voting and meetings; "The Business Combination Provision" discusses certain
provisions of TCI's Articles of Incorporation relating to acquisition
transactions with interested stockholders; "Stockholder-Management Relations --
The Evaluation Provision" describes certain new provisions; and "Amendment
Provisions" sketches the requirements for amending the governing documents of
the Trust and TCI.

MANAGEMENT AFTER INCORPORATION PROCEDURE AND MERGER

CONSTITUENCY OF THE BOARD. The Articles of Incorporation of TCI, as amended,
sets the number of Directors at seven. Each member of the Board of Trustees of
the Trust is also a member of the Board of Directors of TCI. The exact number
of Directors may be fixed or changed by the affirmative vote of a majority of
the entire Board of Directors, from time to time, within the limits set by the
Articles of Incorporation, subject to the limitations mandated by the Olive
Modification. By comparison, the Declaration of Trust provides that the number
of Trustees shall be no less than five nor more than 15 as determined by the
vote of the shareholders of the Trust or the Trustees.

Notwithstanding any limitation on the maximum number of Directors in the
Articles of Incorporation, whenever TCI issues preferred stock and gives its
holders the right to elect a Director at an annual or special meeting of
stockholders, then the election, term of office, filling of vacancies and other
features of such directorships shall be governed by the terms of the Articles
of Incorporation or the resolution(s) adopted by the Board of Directors
applicable thereto. See "Proposed Incorporation Procedure and Merger --
Comparison of the Securities of TCI and the Trust -- Preferred Stock".

Any vacancy on the Board of TCI will be filled by a vote of the majority of
the Directors then in office or by a sole remaining Director. Any Director
elected to fill a vacancy not resulting from an increase in the number of
Directors shall have the same remaining term as that of his predecessor. The
Declaration of Trust provides for filling Board of Trustees vacancies by the
remaining Trustees or by the vote or consent of a majority of the outstanding
shares entitled to vote thereon.

The Declaration of Trust requires that a majority of Trustees be persons who
are not affiliates of Consolidated Capital Equities Corporation ("CCEC"), the
original sponsor of the Trust and one of the Trust's former advisors, or any of
CCEC's affiliates or successor entities. CCEC no longer has any relationship to
the Trust. Under the Declaration of Trust, "Affiliate" is defined as follows:
"as to any Person any other Person who owns beneficially, directly or
indirectly, 1% or more of the outstanding capital stock, shares or equity
interests of such Person or of any other Person which controls, is controlled
by, or is under common control with, such Person or is an officer, retired
officer, director, employee, partner, or trustee (excluding independent
trustees not otherwise affiliated with the entity) of such Person or of any
other Person which controls, is controlled by, or is under common control with,
such Person". Under the Declaration of Trust, "Person" is defined to include
"individuals, corporations, limited partnerships, general partnerships, joint
stock companies or associations, joint ventures, associations, companies,
trusts, banks, trust companies, land trusts, business trusts, or other entities
and governments and agencies and political subdivisions thereof". By contrast,
Article

- 43 -
<PAGE>

SIXTH of the Articles of Incorporation does not require that any of TCI's
Directors be independent of the advisor or any other person. It should be
noted, however, that each of the Trustees, all of which who are also Directors
of TCI, are unaffiliated with BCM.

DIRECTORS. The members of the Board of Directors and the executive officers
of TCI will remain unchanged following the Merger. The current Directors of TCI
are set forth below, together with their ages, terms of service, all positions
and offices with TCI or its advisor, BCM, their principal occupations, business
experience and directorships with other companies during the last five years or
more. The designation "Affiliated", when used below with respect to a Director,
means that the Director is an officer, director or employee of BCM or an
officer of TCI. The designation "Independent", when used below with respect to
a Director, means that the Director is neither an officer of TCI nor a
director, officer of employee of BCM, although TCI may have certain business or
professional relations with such Director, as discussed below in "Business and
Properties of TCI -- Certain Business Relationships and Related Party
Transactions".

TED P. STOKELY: Age 65, Director (Independent) (since April 1990) and
Chairman of the Board of Directors (since January 1995).

General Manager (since January 1995) of ECF Senior Housing Corporation, a
nonprofit corporation; General Manager (since January 1993) of Housing
Assistance Foundation, Inc., a nonprofit corporation; Part-time unpaid
consultant (since January 1993) and paid consultant (April 1992 to December
1992) of Eldercare Housing Foundation ("Eldercare"), a nonprofit
corporation; President (April 1992 to April 1994) of PSA Group; Executive
Vice President (1987 to 1991) of Key Companies, Inc.; Trustee (since April
1990) and Chairman of the Board (since January 1995) of the Trust; Director
(since April 1990) and Chairman of the Board (since January 1995) of Income
Opportunity Realty Investors, Inc. ("IORI"); and Trustee (April 1990 to
August 1994) of National Income Realty Trust ("NIRT").

RICHARD W. DOUGLAS: Age 51, Director (Independent) (since January 1998).

President (since 1991) of Dallas Chamber of Commerce; President (1988 to
1991) of North Texas Commission; President (1978 to 1981) of Las Colina
Corporation and Southland Investment Properties, both affiliates of
Southland Financial Corporation; Trustee (since January 1998) of the Trust;
and Director (since January 1998) of IORI.

LARRY E. HARLEY: Age 58, Director (Independent) (since January 1998).

President (1993 to 1997) and Executive Vice President (1992 to 1993) of
U.S. Operations, Executive Vice President (1989 to 1992) and Senior Vice
President (1986 to 1989) of Distribution Operations, Director of Marketing
(1984 to 1986), and Manager of North Central Distribution Center (1974 to
1984) of Mary Kay Cosmetics; Trustee (since January 1988) of the Trust; and
Director (since January 1998) of IORI.

R. DOUGLAS LEONHARD: Age 62, Director (Independent) (since January 1998).

Senior Vice President (1986 to 1997) of LaCantera Development Company, a
wholly-owned subsidiary of USAA; Senior Vice president (1980 to 1985) of
The Woodlands Development Corporation; Vice President (1973 to 1979) of
Friendswood Development Company; Manager in various capacities (1960 to
1973) of Exxon Corp.; Trustee (since January 1998) of the Trust; and
Director (since January 1998) of IORI.

MURRAY SHAW: Age 67, Director (Independent) (since February 1998).

Chairman of the Board of Regents (since 1997) of Stephen F. Austin
University; Vice President (1967 to 1996) of Tracor, Inc.; Trustee (since
February 1998) of the Trust; and Director (since February 1998) of IORI.

- 44 -
<PAGE>

MARTIN L. WHITE: Age 59, Director (Independent) (since January 1995).

Chief Executive Officer (since 1995) of Builders Emporium, Inc.; Chairman
and Chief Executive Officer (since 1993) of North American Trading Company,
Ltd.; President and Chief Operating Officer (since 1992) of Community Based
Developers, Inc.; Development Officer and Loan Manager (1986 to 1992) of
the City of San Jose, California; Vice President and Director of Programs
(1967 to 1986) of Arpact, Inc., a government contractor for small business
development and trade; Trustee (since January 1995) of the Trust; and
Director (since January 1995) of IORI.

EDWARD G. ZAMPA: Age 64, Director (Independent) (since January 1995).

General Partner (since 1976) of Edward G. Zampa and Company; Trustee
(since January 1995) of the Trust; and Director (since January 1995) of
IORI.

EXECUTIVE OFFICERS. The following persons currently serve as executive
officers of TCI and will continue to serve as executive officers of TCI
following the Merger. Their positions with TCI are not subject to a vote of
TCI's stockholders. Their ages, terms of service, all positions and offices
with TCI or BCM, other principal occupations, business experiences and
directorships with other companies during the last five years or more are set
forth below.

RANDALL M. PAULSON: Age 52, President (since August 1995) and Executive
Vice President (January 1995 to August 1995).

President (since 1995) and Executive Vice President (January 1995 to
August 1995) of the Trust, IORI and Syntek Asset Management, Inc. ("SAMI"),
the managing general partner of Syntek Asset Management, L.P. ("SAMLP"),
which, until December 18, 1998, was the general partner of National Realty,
L.P. ("NRLP") and National Operating, L.P. ("NOLP"), and (October 1994 to
August 1995) of BCM; President (since January 1998) of NRLP Management
Corp. ("NMC"), which has served as the general partner of NRLP and NOLP
since December 18, 1998; Director (August 1995 to November 1998) of SAMI;
Executive Vice President (since January 1995) of ART; Vice President (1993
to 1994) of GSSW, LP, a joint venture of Great Southern Life and
Southwestern Life; Vice President (1990 to 1993) of Property Company of
America Realty, Inc.; and President (1990) of Paulson Realty Group.

KARL L. BLAHA: Age 51, Executive Vice President -- Commercial Asset
Management (since July 1997).

Executive Vice President -- Commercial Asset Management (since July 1997)
and Executive Vice President and Director of Commercial Management (April
1992 to August 1995) of BCM, the Trust, IORI and SAMI; Director (since June
1996), President (since October 1993) and Executive Vice President and
Director of Commercial Management (April 1992 to October 1993) of ART;
Director (since December 1998) and Executive Vice President (since January
1998) of NMC; Executive Vice President (October 1992 to July 1997) of
Carmel Realty, a company owned by First Equity Properties, Inc. ("First
Equity"), which is 50% owned by BCM; Director (since November 1988) of
SAMI; President and Director (since 1996) of First Equity; Executive Vice
President and Director of Commercial Management (April 1992 to February
1994) of NIRT and Vinland Property Trust ("VPT"); Partner -- Director of
National Real Estate Operations of First Winthrop Corporation (August 1988
to March 1992); and Corporate Vice President of Southmark Corporation
("Southmark") (April 1984 to August 1988).

BRUCE A. ENDENDYK: Age 50, Executive Vice President (since January 1995).

President (since January 1995) of Carmel Realty; Executive Vice President
(since January 1995) of BCM, SAMI, ART, the Trust and IORI and (since
January 1998) of NMC; Management Consultant (November 1990 to December
1994); Executive Vice President (January 1989 to November 1990) of
Southmark; and President and Chief Executive Officer (March 1988 to January
1989) of Southmark Equities Corporation.

- 45 -
<PAGE>

STEVEN K. JOHNSON; Age 41, Executive Vice President--Residential Asset
Management (since August 1998).

Executive Vice President -- Residential Asset Management (since August
1998) and Vice President (August 1990 to August 1991) of BCM, SAMI, ART,
IORI and the Trust; Executive Vice President --Residential Asset Management
(since August 1998) of NMC; Chief Operating Officer (January 1993 to August
1998) of Garden Capital, Inc.; Executive Vice President (December 1994 to
August 1998) of Garden Capital Management, Inc.; Vice President (August
1991 to January 1993) of SHL Properties Realty Advisors, Inc. and SHL
Acquisition Corporation II and III; and Vice President (August 1990 to
August 1991) of NIRT and VPT.

THOMAS A HOLLAND; Age 56, Executive Vice President and Chief Financial
Officer (since August 1995); Secretary (since February 1997) and Senior
Vice President and Chief Accounting Officer (July 1990 to August 1995).

Executive Vice President and Chief Financial Officer (since August 1995)
and Senior Vice President and Chief Accounting Officer (July 1990 to August
1995) of SAMI, BCM, ART, IORI and the Trust; Secretary (since February
1997) of IORI and the Trust; Executive Vice President and Chief Financial
Officer (since January 1998) of NMC; and Senior Vice President and Chief
Accounting Officer (July 1990 to February 1994) of NIRT and VPT.

OFFICERS. Although not executive officers of TCI, the following persons
currently serve as officers of TCI. Their positions with TCI are not subject
to a vote of stockholders. Their ages, terms of service, all positions and
offices with TCI or BCM, other principal occupations, business experience and
directorships with other companies during the last five years or more are set
forth below.

ROBERT A. WALDMAN; Age 46, Senior Vice President and General Counsel (since
January 1995); Vice President (December 1990 to January 1995); and
Secretary (December 1993 to February 1997).

Senior Vice President and General Counsel (since January 1995), Vice
President (December 1990 to January 1995) and Secretary (December 1993 to
February 1997) of IORI and the Trust; Vice President (December 1990 to
February 1994) and Secretary (December 1993 to February 1994) of NIRT and
VPT: Senior Vice President and General Counsel (since January 1995), Vice
President (January 1993 to January 1995) and Secretary (since December
1989) of ART; Senior Vice President and General Counsel (since November
1994), Vice President and Corporate Counsel (November 1989 to November
1994) and Secretary (since November 1989) of BCM; Senior Vice President and
General Counsel (since January 1995), Vice President (April 1990 to January
1995) and Secretary (since December 1990) of SAMI; and Senior Vice
President, General Counsel and Secretary (since January 1998) of NMC.

DREW D. POTERA; Age 39, Vice President (since December 1996) and Treasurer
(since December 1990).

Vice President (since December 1996) and Treasurer (since December 1990)
of IORI and the Trust; Treasurer (December 1990 to February 1994) of NIRT
and VPT; Vice President (since December 1996) and Assistant Treasurer
(December 1990 to August 1991) and Treasurer (since August 1991) of ART;
Vice President, Treasurer and Securities Manager (since July 1990) of BCM;
Vice President and Treasurer (since February 1992) of SAMI and (since
January 1998) of NMC; and Financial Consultant with Merrill Lynch, Pierce,
Fenner & Smith Incorporated (June 1985 to June 1990).

EXECUTIVE COMPENSATION. TCI has no employees, payroll or benefit plans and
pays no compensation to the executive officers of TCI. The executive officers
of TCI who are also officers or employees of BCM are compensated by BCM. Such
executive officers of TCI perform a variety of services for BCM and the amount
of their compensation is determined solely by BCM. BCM does not allocate the
cash compensation of its officers among the various entities for which it
serves as advisor.

- 46 -
<PAGE>

The only remuneration paid by TCI is to the Directors who are not officers
or directors of BCM or its affiliated companies. The Independent Directors (1)
review the investment policies of TCI to determine that they are in the best
interest of TCI's stockholders, (2) review TCI's contract with its advisor, (3)
supervise the performance of TCI's advisor and review the reasonableness of the
compensation which TCI pays to its advisor in terms of the nature and quality
of services performed, (4) review the reasonableness of the total fees and
expenses of TCI and (5) select, when necessary, a qualified independent real
estate appraiser to appraise properties purchased by TCI.

Each Independent Director receives compensation in the amount of $15,000 per
year plus reimbursement for expenses, and the Chairman of the Board receives an
additional fee of $1,500 per year for serving in such position. In addition,
each Independent Director receives $1,000 per day for any special services
rendered by him to TCI outside of his ordinary duties as Director, plus
reimbursement of expenses.

During 1997, $78,250 was paid to the Independent Directors in total
Directors' fees for all services, including the annual fee for service, during
the period January 1, 1997 through December 1997, and 1997 special service fees
as follows: Ted P. Stokely, $16,500; Edward L. Tixier, $15,000; Martin L.
White, $15,000; and Edward G. Zampa, $31,750.

THE DIRECTOR REMOVAL PROVISION. Under Article ELEVENTH of the Articles of
Incorporation (the "Director Removal Provision"), each Director of the Board of
Directors may be removed only by the affirmative vote of the holders of not
less than 80% of the outstanding stock of TCI then entitled to vote for the
election of such director. By contrast, under the Declaration of Trust,
Trustees may be removed by vote or consent of the holders of a majority of the
outstanding shares entitled to vote thereon, or by a majority of the remaining
Trustees. The Director Removal Provision makes removal of a Director of TCI
more difficult by requiring a super-majority vote.

Stockholders should note that affiliates of TCI, BCM and ART, effectively
will have veto power over the removal of Directors of TCI pursuant to the
Director Removal Provision. BCM and ART will own approximately 13.3% and 36.8%,
respectively, of the shares of TCI following the Incorporation Procedure and
the Merger.

The Director Removal Provision tends to ensure managerial continuity and to
deter certain kinds of unsolicited takeovers while making changes in control
somewhat more difficult. See "Proposed Incorporation Procedure and Merger --
Possible Negative Considerations".

TCI'S ADVISOR. The day-to-day operations of TCI are currently, and it is
anticipated that they will continue to be, performed by BCM under the TCI
Advisory Agreement described under "Business and Properties of TCI -- The TCI
Advisory Agreement", subject to stockholder approval of the Incorporation
Procedure and the Merger.

The Declaration of Trust currently requires that all advisory agreements
have an initial term of no more than two years and provide for annual renewal
or extension thereafter, subject to shareholder approval. In contrast, Article
THIRTEENTH of the Articles of Incorporation provides that the Board of
Directors may authorize advisory agreements; however there is no requirement
that the Board of Directors obtain stockholder approval prior to any renewal or
modification of such advisory agreements (although the Board of Directors
intends to continue this practice). Pursuant to the terms of the Olive
Modification, which became effective on January 11, 1995, if BCM or any other
entity affiliated with members of the Trust's management serves as advisor,
advisory agreements are and will remain subject to the review and approval of
two-thirds of the Board of Directors. See "Proposed Incorporation Procedure and
Merger -- Business Activities after Incorporation Procedure and Merger --
Restrictions on Related-Party Transactions".

The Declaration of Trust also provides for termination of advisory
agreements without penalty (i) by the advisor upon 120 days' written notice or
(ii) by the shareholders (by a vote of the majority of the outstanding

- 47 -
<PAGE>

shares) or (iii) by the Board of Trustees (by majority vote including a
majority of unaffiliated Trustees) upon 60 days' written notice. The TCI
Articles of Incorporation leave termination provisions regarding advisory
agreements to the negotiation of the parties. See "Business and Properties of
the Trust -- The Trust Advisor" for a discussion of the relationship between
the Trust and BCM. Neither TCI's Articles of Incorporation nor the Declaration
of Trust requires shareholder approval for the selection of the advisor per se.

The Declaration of Trust requires that any advisory agreement entered into
with a Trustee or an affiliate of a Trustee must be made, approved or ratified
by a majority of the Trustees who are not so affiliated. Transactions of TCI
with any advisor or affiliate thereof would be governed by the NRS and the
unified related-party provisions contained in Article FOURTEENTH of the
Articles of Incorporation together with the Olive Modification. As explained
more fully in "Proposed Incorporation Procedure and Merger -- Business
Activities after Incorporation Procedure and Merger -- Restrictions on Related-
Party Transactions" and pursuant to the Olive Modification, until April 28,
1999, prior to entering certain related party transactions, with the exception
of certain specified contracts including the TCI Advisory Agreement, the Board
of Directors would be required to unanimously agree that the transaction is in
the best interest of the corporation and that no other opportunity exists that
is as good as the opportunity presented by such transaction. Direct contractual
agreements for services, such as the TCI Advisory Agreement between TCI and BCM
or one of its affiliates, would only require the prior approval of two-thirds
of the Board of Directors.

Section 4.3 of the Declaration of Trust requires the Trust's advisor to use
its best efforts to present to the Trust a continuing and suitable investment
program, consistent with the Trust's investment policies and objectives.
However, consistent with the Declaration of Trust, neither the advisor nor any
affiliate of the advisor is obligated to present any particular investment
opportunity to the Trust. The advisor is, in fact, expressly authorized to take
for its own account or recommend to others any particular investment
opportunity. There is no comparable provision to such Section 4.3 in the
Articles of Incorporation.

The Articles of Incorporation impose fewer explicit restrictions on
compensation of TCI's advisor than does the Declaration of Trust. Article
THIRTEENTH of the Articles of Incorporation provides that the compensation
payable under the TCI Advisory Agreement must be approved as "fair and
equitable" by the Board of Directors, and the Restrictions on Related-Party
Transactions Provision also applies to compensation of the advisor. See,
however, the discussion of contractual limits on operating expenses below under
"Proposed Incorporation Procedure and Merger -- Business Activities after
Incorporation Procedure and Merger --Limitations on Operating Expenses".

LIABILITY OF CERTAIN PERSONS

THE MANAGEMENT LIABILITY PROVISION. The corporate structure of TCI enables
TCI to define the liability of corporate officers and Directors with greater
precision. The Board of Trustees believes that limited liability will help
continue to retain and attract the best possible officers and Directors.
Currently, each of the Trustees has been offered contractual indemnification to
the fullest extent permitted by the Declaration of Trust or to the fullest
extent not prohibited under applicable law. Under the Management Liability
Provision (Article NINTH of the Articles of Incorporation), the Directors will
not have personal liability to TCI or its stockholders for monetary damages for
any breach of their fiduciary duties as Directors (including, without
limitation, any liability for gross negligence in the performance of their
duties), except for (i) acts or omissions which involve intentional misconduct,
fraud or a knowing violation of law or (ii) the payment of dividends in
violation of NRS 78.300. By precluding personal liability for certain breaches
of fiduciary duty, including grossly negligent business decisions in evaluating
takeover proposals to acquire TCI, the Management Liability Provision
supplements indemnification rights afforded under TCI's Articles of
Incorporation and Bylaws which provide, in substance, that TCI shall indemnify
its Directors, officers, employees and agents to the fullest extent permitted
by the NRS and other applicable laws.

The Articles of Incorporation provide that "shall indemnify to the fullest
extent authorized or permitted by law (as now or hereafter in effect).... to any
person made or threatened to be made a party or witness to any

- 48 -
<PAGE>

action, suit or proceeding (whether civil or criminal or otherwise) by reason
of the fact that such person is or was a director, officer, employee or agent
of [TCI]. . . ." Further, the Bylaws provide that "[e]ach officer, director or
employee . . . shall be indemnified . . . to the full extent permitted under
Chapter 78 of the Nevada Revised Statutes and other applicable law." Pursuant
to the NRS, a corporation may indemnify persons for expenses related to an
action, suit or proceeding, except an action by or in the right of the
corporation, by reason of the fact that such person is or was a director,
officer, employee or agent, if such person acted in good faith and in a manner
which he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, if
such person had no reasonable cause to believe his conduct was unlawful. The
expenses indemnified against in this provision include attorneys' fees,
judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with the action, suit or proceeding. The NRS further
provides that a corporation may indemnify persons for attorneys' fees related
to an action, suit or proceeding by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that such person is or
was a director, officer, employee or agent, if such person acted in good faith
and in a manner which he reasonably believed to be in or not opposed to the
best interests of the corporation. The corporation may also indemnify directors
for amounts paid in judgments and settlements in such a suit, but only if
ordered by a court after determining that the person is "fairly and reasonably"
entitled to indemnity.

The Management Liability Provision contained in the Articles of
Incorporation is analogous to Article VII of the Declaration of Trust. Article
VII, however, explicitly exculpates Trustees, officers, employees and agents of
the Trust while the Management Liability Provision explicitly exculpates only
directors. Further, under the Declaration of Trust, a Trustee would not be
indemnified for liability arising from gross negligence or reckless disregard
of duty, whereas a Director of TCI may be indemnified for such liability under
the Articles of Incorporation.

The NRS and Nevada common law provide that a corporation's board of
directors owes certain fiduciary duties to the corporation and its
stockholders, including a duty of loyalty and a duty of care. The duty of care
is generally considered to require directors to be sufficiently diligent and
careful in informing themselves regarding, and in deciding whether to take or
not to take, corporate action. The duty of care to which directors are bound is
that which ordinarily prudent and diligent men would exercise under similar
circumstances. The duty of loyalty is generally considered to require directors
to act in what they determine in good faith, after appropriate consideration,
to be in the best interest of the corporation and not to engage in self-
dealing. With respect to limitations on the personal liability of Directors to
TCI or its stockholders, the Management Liability Provision is more expansive
than the provision in the Declaration of Trust that addresses the limitations
on the personal liability of Trustees to the Trust or its shareholders.
Consequently, the Management Liability Provision expands the current limitation
on personal liability of members of management to cover, in addition, certain
violations of their fiduciary duty of care rising to the level of gross
negligence or reckless disregard of duty. The Management Liability Provision
would not, however, insulate Directors of TCI from liability to TCI or its
stockholders for (i) acts or omissions which involve intentional misconduct,
fraud or a knowing violation of law or (ii) the payment of distributions in
violation of NRS 78.300. The limitation of liability applies only to claims by
TCI or its stockholders and does not preclude or limit recovery of damages by
others, such as creditors. Furthermore, the limitation of liability applies
prospectively only and would therefore not affect a Trustee's potential
liability for acts or omissions in his capacity as a Trustee prior to the
effective time of the Merger.

The Management Liability Provision further provides that any repeal or
modification of Article NINTH would not increase the personal liability of any
Director of TCI for any act or occurrence taking place prior to such repeal or
modification, or otherwise adversely affect any right or protection of a
Director of TCI existing at the time of such repeal or modification. Moreover,
the Management Liability Provision provides that if Nevada law is in the future
amended to further eliminate or limit the liability of directors, then the
liability of a Director shall be eliminated or limited to the fullest extent
permitted by Nevada law, as so amended.

By protecting directors from assessments of monetary damages for breaches of
the duty of care, the Management Liability Provision limits the remedies
available to a stockholder seeking to challenge a Board

- 49 -
<PAGE>

decision protected by the Management Liability Provision, including, for
example, decisions relating to acquisition proposals or similar transactions.
However, it does not eliminate or change the duty of care. Accordingly, the
Management Liability Provision does not limit the availability of equitable
remedies, such as an injunction or rescission based on a director's breach of
the duty of care, although, as a practical matter, particular equitable
remedies may not be available (e.g., after a transaction has already been
effected). Additionally, the Bylaws of TCI provide indemnification to each
officer, Director and employee of TCI to the fullest extent permitted by
Chapter 78 of the NRS and other applicable law.

The Management Liability Provision also provides that TCI shall indemnify to
the fullest extent permitted by law any person who is a party or is made or
threatened to be made a party or witness to any action, suit or proceeding
(whether civil or criminal or otherwise) by reason of the fact that such person
is or was a Director, officer, employee or agent of TCI, or is or was serving
at the request of TCI, any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise in any capacity. The
Management Liability Provision also provides that TCI shall advance expenses to
the fullest extent permitted by law to such indemnitee. The Management
Liability Provision further states that any amendment to or repeal of Article
NINTH would not diminish such indemnification with respect to any acts or
omissions occurring prior to such amendment or repeal.

The Declaration of Trust provides that the Trust shall indemnify and
reimburse any person made a party to any action, suit or proceeding or against
whom any claim or liability is asserted because he, his testator or intestate
was or is a Trustee, officer, employee or agent of the Trust for any judgments,
fines, amounts paid on amount thereof (whether in settlement or otherwise) and
reasonable expenses, including attorneys' fees, actually and reasonably
incurred by him in defending against such claim, action, suit or proceeding, or
alleged liability or in connection with any appeal therein, except where the
claim, obligation or liability arose out of such person's willful misfeasance,
bad faith, gross negligence or reckless disregard of duty. The indemnity
provisions of the Management Liability Provision and Section 78.751 of the NRS
are comparable except that Section 78.751 of the NRS provides that a
corporation shall make no indemnification in respect of any claim as to which a
final adjudication establishes that the Director is liable to TCI or for
amounts paid in settlement to TCI unless and only to the extent that the court
in which the action was brought determines upon application that in view of all
the circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such expenses.

As herein described, Directors and officers of TCI are indemnified against
certain liabilities under provisions of the Articles of Incorporation and
Bylaws. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to Directors, officers or persons controlling TCI pursuant
to the foregoing provisions, TCI has been informed that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Act and is therefore unenforceable.

In addition, the Management Liability Provision provides, as permitted by
the NRS, that TCI may maintain insurance, at its expense, to protect itself and
any Director, officer, employee or agent of TCI or another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
against such expense, liability or loss, whether or not TCI would have the
power to indemnify such person against any such expense, liability or loss
under the NRS. Section 7.4 of the Trust's Declaration of Trust is analogous to
this portion of the Management Liability Provision. The Trust purchased such
insurance for the benefit of its officers and Trustees in July 1996, and TCI
has comparable insurance in place for its Board of Directors.

The Trustees and officers of the Trust are indemnified under the Declaration
of Trust against judgments, fines, amounts paid on account of and reasonable
expenses (including attorneys' fees) incurred in connection with the defense of
suits or proceedings in which a claim or liability against a person is asserted
by reason of the fact that he is a Trustee or officer of the Trust, as the case
may be. Currently, each of the Trustees of the Trust has been offered
contractual indemnification to the fullest extent permitted by the Declaration
of Trust or to the fullest extent not prohibited under applicable law.

- 50 -
<PAGE>

STOCKHOLDER LIABILITY. Limitations on the potential personal liability of
stockholders for the acts and obligations applicable to TCI under Nevada law
are comparable to the limitations under California law and the Declaration of
Trust applicable to stockholders of the Trust with respect to the Trust's acts
and obligations. Though the Articles of Incorporation do not expressly limit
stockholder liability, pursuant to Article 8 Section 3 of the Nevada
constitution and Section 78.225 of the NRS, stockholders are not personally
liable for the payment of a corporation's debts, except to the extent a
stockholder has not paid the consideration for which that shareholder's shares
were authorized to be issued or which was specified in a written subscription
agreement between the corporation and the shareholder. Similarly, the
Declaration of Trust provides that shareholders shall not be subject to any
personal liability for the acts or obligations of the Trust and that every
written undertaking made by the Trust shall contain a provision that such
undertaking is not binding on any shareholders personally. Under Section 23001
of the California Corporations Code, no shareholder of a real estate investment
trust like the Trust shall be personally liable for any liabilities, debts or
obligations of, or claims against, such real estate investment trust. Section
23002 of the California Corporations Code further provides that Section 23001
applies to any real estate investment trust organized under the laws of
California with respect to liabilities, debts, obligations and claims wherever
arising. Under Section 23000 of the California Corporations Code, the Trust is
classified as a "real estate investment trust" for purposes of the foregoing
provisions of California law. Thus, it appears that the Incorporation Procedure
and the Merger will not materially alter shareholder liability in California.
It should be noted that the law regarding trusts in other states where the
Trust does business might treat shareholders' liability in a different manner
(i.e., impose liability) if a court in such state were not to apply California
law to such issue.

BUSINESS ACTIVITIES AFTER INCORPORATION PROCEDURE AND MERGER

Although no significant change in the nature of TCI's business (including
the business of the Trust following the Incorporation Procedure and the Merger)
is anticipated as a result of the Incorporation Procedure and the Merger, it
should be noted that the Articles of Incorporation place fewer restrictions on
the business activities of TCI and no limitations on TCI's operating expenses,
as discussed below in "-- Limitations on Operating Expenses".

RESTRICTIONS ON INVESTMENT ACTIVITIES. Section 5.3 of the Declaration of
Trust includes certain restrictions on the investment activities of the Trust.
Specifically, the Trustees are restricted from the following activities:

(a) investing in any foreign currency, bullion or commodities;

(b) investing in contracts of sale for real estate, except in conjunction
with acquisition or sale of real property or when held as security for
mortgages made or acquired by the Trust;

(d) issuing warrants, options or rights to buy shares, except as part of a
ratable issue to shareholders or as part of a public offering or as
part of a financial arrangement with parties other than the advisor or
directors, Trustees, officers or employees of the Trust or the advisor
or as part of a ratable distribution to shareholders;

(e) issuing equity securities of more than one class (other than
convertible obligations, warrants, rights and options, and regular or
residual interests in real estate mortgage investment conduits
("REMICS"));

(f) making any loan to the sponsor of the Trust, CCEC, the advisor or any
of their affiliates;

(g) engaging in trading as compared with investment activities, or engaging
in the business of underwriting or agency distribution of securities
issued by others, but this prohibition shall not prevent the Trust from
selling participations or interests in mortgage loans or real property
or from selling or pledging a pool of notes receivable from property
sales or selling interests in REMICS or collateralized mortgage
obligations ("CMOs");

- 51 -
<PAGE>

(h) investing more than 10% of total Trust assets in junior mortgage loans,
excluding wrap-around mortgage loans;

(i) acquiring securities in any company holding investments or engaging in
activities prohibited by the Declaration of Trust;

(j) issuing "redeemable securities," as defined in Section 2(a)(32) of the
Investment Company Act of 1940, "face-amount certificates of the
installment type" as defined in Section 2(a)15 thereof and "periodic
payment plan certificates" as defined in Section 2(a)(27) thereof;

(k) purchasing insurance either through or from any affiliate;

(l) (purchasing any real property on which the total real estate commission
paid by the Trust to anyone exceeds 6% of the total purchase price, or
sell any real property on which the total real estate commission paid
by the Trust to anyone exceeds 5% of the total sales price;

(m) purchasing, selling or leasing any real properties or mortgages to or
from CCEC, the advisor or any of their Affiliates, including any
investor program in which any of the foregoing may also be a general
partner or sponsor; or

(n) issuing convertible or non-convertible debt securities (other than
interests in REMICS and CMOs) to the public unless the historical cash
flow of the Trust or the substantiated future cash flow of the Trust,
excluding extraordinary items, is sufficient to cover the interest on
the debt securities.

Subject to the foregoing restrictions and the restrictions on related-party
transactions discussed below, the Trustees may change the investment policy of
the Trust without shareholder approval if they determine that such change would
be in the best interest of the Trust.

Article THIRD of the Articles of Incorporation states that TCI may engage in
any lawful activity, subject to the restrictions on related party transactions
described below under "Proposed Incorporation Procedure and Merger -- Business
Activities after Incorporation Procedure and Merger -- Restrictions on Related-
Party Transactions". While, unlike the Declaration of Trust, the Articles of
Incorporation neither dictate specific investment policies nor formally
restrict particular activities of TCI, it is currently expected that the
investment policies and activities of TCI will be substantially similar to the
existing investment policies and activities of the Trust. Notwithstanding such
expectation, TCI may avail itself of the greater flexibility permitted by the
Articles of Incorporation to make certain investments that the Trust is not
authorized to make. No assurance can be given that TCI's investment policies
will not change if, in the opinion of the Board of Directors, circumstances so
require, and certain investment policies may be changed without stockholder
approval.

To continue to qualify for taxation as a REIT under the Code, TCI will be
required to, among other things, (i) hold at least 75% of the value of its
total assets in real estate assets, government securities, cash and cash items
at the close of each quarter of each taxable year, (ii) distribute 95% of its
taxable income each year (excluding any net capital gain) as dividends, (iii)
ensure that no more than 50% in value of its outstanding stock is held by five
or fewer individuals or certain organizations at any time during the last half
of each taxable year and (iv) ensure that no fewer than 100 persons are
beneficial owners of stock of TCI during at least 335 days of each taxable
year. Certain of the restrictions on investing activities of the Trust
contained in the Declaration of Trust facilitate compliance with the REIT Code
requirements.

Provided TCI operates as a REIT, its investment policies will be limited by
applicable Code provisions, and it is expected that TCI will conduct its future
business activities in such a manner as to maintain its anticipated REIT
status. Nevertheless, TCI would have substantially greater flexibility and
fewer restrictions on its investment policy than the Trust currently has.

LIMITATIONS ON OPERATING EXPENSES. Additionally, Section 4.4 of the
Declaration of Trust places specific limits on the Trust's operating expenses
(defined in Section 1.4(u) of the Declaration of Trust). For

- 52 -
<PAGE>

purposes of these limitations, operating expenses include (i) aggregate annual
expenses constituting operating expenses under generally accepted accounting
principles, (ii) the advisory fee payable to the Trust's advisor and (iii) the
fees and expenses paid to the Trustees who are not employees or affiliates of
the advisor. However, such operating expenses specifically exclude (i) the cost
of money borrowed by the Trust, (ii) income taxes, taxes and assessments on
real property and all other taxes applicable to the Trust, (iii) expenses and
taxes incurred in connection with the issuance, distribution, transfer,
registration and stock exchange listing of the Trust's securities, (iv) fees
and expenses paid to independent mortgage servicers, contractors, consultants,
managers and other agents retained by or on behalf of the Trust, (v) expenses
directly connected with the purchase, origination, ownership and disposition of
real properties or mortgage loans, other than expenses with respect thereto
(with the exception of legal services) of employees of the Trust's advisor,
(vi) the expenses of maintaining and managing real estate equity interests and
processing and servicing mortgage and other loans, (vii) expenses connected
with payments of dividends, interest or distributions by the Trust to
shareholders, (viii) expenses connected with communicating to shareholders and
maintaining shareholder relations, (ix) transfer agent's, registrar's and
indenture trustee's fees and charges, and (x) reserves for depletion,
depreciation and amortization and losses and provisions for losses. The
following direct expenses of the advisor are excluded from the Trust's
operating expenses and are borne by the advisor: (a) employment expenses of the
advisor's personnel (including Trustees, officers and employees of the Trust
who also serve as directors, officers, or employees of the Trust's advisor or
affiliates of the advisor), (b) advertising and promotional expenses incurred
in seeking investments for the Trust, (c) rent, telephone, utilities, office
furnishings and other office expenses of the Trust's advisor (except those
relating to a separate office, if any, maintained solely for the Trust) and (d)
miscellaneous administrative expenses relating to performance by the advisor of
its functions under the Trust Advisory Agreement.

Under Section 4.4 of the Declaration of Trust, operating expenses of the
Trust for any fiscal year may not exceed the lesser of (a) 1.5% of the average
of the "Book Values of Invested Assets" (as defined in the Declaration of
Trust) of the Trust at the end of each calendar month of such fiscal year, or
(b) the greater of (i) 1.5% of the average of the "Net Asset Value" (as defined
in the Declaration of Trust) of the Trust at the end of each calendar month of
such fiscal year and (ii) 25% of the Trust's "Taxable Income" (as defined in
the Declaration of Trust). The Declaration of Trust further provides that any
advisory agreement shall specifically provide for a refund to the Trust of the
amount, if any, by which the operating expenses exceed the applicable amount,
provided that the amount of such refund shall not exceed the aggregate of the
advisory fees paid to the advisor under such contract with respect to such
fiscal year.

In accordance with this section, the Trust Advisory Agreement described
under "Business and Properties of the Trust -- The Trust Advisory Agreement"
specifically provides for a refund to the Trust of the amount by which the
operating expenses of the Trust for any fiscal year exceed the limitation set
forth in Section 4.4 of the Declaration of Trust, "or in any similar limitation
(if contained) in a successor Declaration of Trust or [Articles] of
Incorporation . . . ." Although the Articles of Incorporation place no
limitations on TCI's operating expenses, the limitation on operating expenses
under the Declaration of Trust, assuming shareholders approve the Incorporation
Procedure and the Merger, are included contractually in the TCI Advisory
Agreement. See "Risk Factors -- Elimination of Certain Protections of the
Declaration of Trust". The effect of this limitation was to require the advisor
to refund to the Trust of $606,000, $589,000 and $250,000 of the annual
advisory fee for 1997, 1996 and 1995, respectively.

The TCI Advisory Agreement will not be amended in conjunction with the
Incorporation Procedure and the Merger. The fees and commissions payable by TCI
to the advisor will remain the same if the Incorporation Procedure and the
Merger are approved as those currently paid by the Trust.

RESTRICTIONS ON RELATED-PARTY TRANSACTIONS. Article FOURTEENTH of the
Articles of Incorporation provides that TCI shall not, directly or indirectly,
contract or engage in any transaction with (i) any director, officer or
employee of TCI, (ii) any Director, officer or employee of the advisor, (iii)
the advisor or (iv) any affiliate or associate (as such terms are defined in
Rule 12b-2 under the Securities Exchange Act of 1934, as

- 53 -
<PAGE>

amended (the "Exchange Act")) of TCI or any person identified in the foregoing
clauses (i) through (iii) unless (a) the material facts as to the relationship
among or financial interest of the relevant individuals or persons and as to
the contract or transaction are disclosed to or are known by the Board of
Directors or the appropriate committee thereof and (b) the Board of Directors
or committee thereof determines that such contract or transaction is fair to
TCI and simultaneously authorizes or ratifies such contract or transaction by
the affirmative vote of a majority of the independent Directors of TCI entitled
to vote thereon. Article FOURTEENTH defines an "independent director" as one
who is neither an officer or employee of TCI nor a director, officer or
employee of TCI's advisor.

Pursuant to the Olive Modification and Olive Amendment (as defined herein),
prior to April 28, 1999, certain related party transactions require the
unanimous approval of the Board of Trustees of the Trust and the unanimous
approval of the Board of Directors of TCI. More specifically, related party
transactions may only be entered into in exceptional circumstances and after a
determination by the Board of Trustees (or the Board of Directors, as the case
may be), that no other opportunity exists that is as good as the opportunity
presented by such related-party transactions.

If the Incorporation Procedure and the Merger are adopted, the Board of
Directors of TCI will continue to be required to review such related party
transactions to determine whether such transactions satisfy the criteria
established by the Olive Modification and the Olive Amendment. While the Board
of Directors will necessarily consider the permissibility of any related-party
transaction under TCI's Articles of Incorporation, such Articles of
Incorporation generally permit related-party transactions if approved by a
majority of the independent Directors. None of the members of the Board of
Directors is an officer, director or employee of TCI's advisor and none will be
an officer or employee of TCI. Apart from the different standards applicable to
related-party transactions under the Articles of Incorporation and Declaration
of Trust, respectively, the proposed Incorporation Procedure and the Merger are
not expected to affect the review and approval of related-party transactions.

Shareholders should note that Article FOURTEENTH does not supplant Nevada
law regarding related-party transactions; rather, Article FOURTEENTH provides
additional protection against the possibility of related-party transactions
unfavorable to TCI. Under the NRS, a contract or transaction between a
corporation and one or more of its directors or officers, or between a
corporation and any corporation, firm or association in which one or more of
its directors or officers are directors or officers or are financially
interested, is not void or voidable solely for this reason, or solely because
the director or officer is present at the meeting of the board of directors or
a committee thereof which authorizes or approves the contract or transaction,
or because the vote or votes of common or interested directors are counted for
that purpose, provided that one of the four requirements below is met:

(i) The fact of the common directorship, office or financial interest is
disclosed or known to the board of directors or committee and noted in
the minutes, and the board or committee authorizes, approves or
ratifies the contract or transaction in good faith by a vote sufficient
for the purpose without counting the vote or votes of the common or
interested director or directors.

(ii) The fact of the common directorship, office or financial interest is
disclosed or known to the stockholders, and they approve or ratify the
contract or transaction in good faith by a majority vote of
stockholders holding a majority of voting power. The votes of the
common or interested directors or officers must be counted in any such
vote of stockholders.

(iii) The fact of the common directorship, office or financial interest is
not disclosed or known to the director or officer at the time the
transaction is brought before the board of directors of the
corporation for action.

(iv) The contract or transaction is fair as to the corporation at the time
it is authorized or approved.

The basic restriction on transactions between the Trust and related parties
contained in the Declaration of Trust is similar to restrictions contained in
TCI's Articles of Incorporation and the NRS. Section 7.6 of the

- 54 -
<PAGE>

Declaration of Trust provides that absent fraud and except as otherwise
prohibited by the Declaration of Trust, a contract, act or other transaction
between the Trust and any other person, or in which the Trust is interested,
shall be valid even though one or more of the Trustees or officers of the Trust
(i) are directly or indirectly interested in, or connected with, or are
trustees, partners, directors, officers or related officers of such other
person or (ii) individually or jointly with others, is a party or are parties
to or directly or indirectly interested in, or connected with, such contract,
act or transaction. Further, no Trustee or officer shall be under any
disability from or have any liability as a result of entering into any such
contract, act or transaction provided that (i) such interest or connection is
disclosed or known to the Trustees and thereafter the non-interested Trustees
vote to authorize such contract, act or other transaction; (ii) such interest
or connection is disclosed or known to the stockholders and thereafter such
contract, act or transaction is approved by the stockholders; and (iii) such
contract, act or transaction is fair and reasonable to the Trust at the time it
is authorized by the Trustees or by the shareholders.

The Declaration of Trust also contains specific restrictions on certain
transactions between the Trust and certain other persons. Although the
standards and procedures by which such transactions are permissible under TCI's
Articles of Incorporation and Nevada law, on the one hand, and the Declaration
of Trust, on the other, are not dissimilar in the opinion of the Board of
Trustees, the Declaration of Trust absolutely prohibits certain transactions
between the Trust and certain related parties, as discussed below, regardless
of the fairness of the terms of such transactions and whether such transactions
are authorized by a majority of unaffiliated Trustees or approved by the
shareholders. Because TCI's Articles of Incorporation contains no analogous
prohibition, the Incorporation Procedure and the Merger will permit TCI greater
flexibility to engage in a larger class of transactions with related parties
than the more limited class of transactions between the Trust and certain
related parties that is currently permitted by the Declaration of Trust.
Nevertheless, the Board of Trustees believes that the restrictions in TCI's
Articles of Incorporation and the restrictions mandated by the NRS, together
with the oversight by the Board of Directors required through April 28, 1999,
pursuant to the Olive Modification, will offer adequate protection to ensure
the fairness and propriety of transactions between TCI and related parties. See
"Business and Properties of the Trust -- Involvement in Certain Legal
Proceedings".

Section 7.6 of the Declaration of Trust states that the Trust "shall not
purchase or lease, directly or indirectly, any [r]eal [p]roperty or purchase
any [m]ortgage from the [a]dvisor or any affiliated Person or from any
partnership in which any of the foregoing may also be a general partner."
Further, the Trust shall not "sell or lease, directly or indirectly, any of its
[r]eal [p]roperty or sell any [m]ortgage to any of the foregoing Persons." CCEC
or the Trust's advisor may make mortgage loans, purchase real property and
assume loans in connection therewith in its own name and temporarily hold title
thereto for the purpose of facilitating the acquisition of such real property
or mortgage loans or the borrowing of money or obtaining of financing for the
Trust, or for any other purpose related to the Trust's business, provided the
price for which the Trust purchases such asset is no greater than the cost to
CCEC or the Trust's advisor and there is no difference in the interest rates of
the loans related thereto at the time acquired by CCEC or the Trust's advisor
and the time acquired by the Trust, nor any other benefit to CCEC or the
Trust's advisor arising out of such transaction apart from compensation
otherwise permitted by the prospectus pursuant to which the Trust offered Trust
shares to the public. As discussed under "-- Business Activities After
Incorporation Procedure and Merger", Section 5.3 of the Declaration of Trust
also prohibits the Trustees from (i) making any loan to CCEC, the Trust's
advisor, or any of their affiliates and (ii) purchasing, selling or leasing any
real properties or mortgages to or from CCEC, the Trust's advisor or any of
their affiliates, including any investor program in which any of the foregoing
may also be a general partner or sponsor. CCEC no longer has any relationship
to the Trust.

The Declaration of Trust further provides in Section 7.6 that:

the Trust shall not, directly or indirectly, engage
in any transaction with any Trustee, officer or
employee of the Trust or any director, officer or
employee of the [a]dvisor, of [CCEC] or of any
company or other organization of which any of the
foregoing is an Affiliate, except for . . .
(c) transactions with [CCEC] or the [a]dvisor or
Affiliates thereof involving

- 55 -
<PAGE>

loans, real estate brokerage services, mortgage
brokerage services, real property management
services, the servicing of [m]ortgages, the leasing
of real or personal property, or other services,
provided such transactions are on terms not less
favorable to the Trust than the terms on which non-
affiliated parties are then making similar loans or
performing similar services for comparable entities
in the same area and are not entered into on an
exclusive basis with such Person; provided, however,
that any transaction referred to in clause (c) may be
entered into only upon approval by affirmative vote
or consent of a majority of the Trustees who are not,
other than as Trustees, interested in or Affiliates
of any Person who is interested in the transaction.

COMPARISON OF THE SECURITIES OF TCI AND THE TRUST

COMMON EQUITY. TCI is authorized by its Articles of Incorporation to issue
up to 10,000,000 shares of common stock. By contrast, the Trust may issue an
unlimited number of shares of beneficial interest, and such Trust shares have
no par value per share. The Articles of Incorporation of TCI establish the par
value of the shares of TCI common stock at $0.01 per share.

With respect to conversion, preemptive rights, dividends, voting rights and,
except to the extent TCI may issue additional shares of preferred stock in the
future, the TCI common stock is comparable to the Trust shares. For a
discussion of liquidation preferences, voting rights and other features of the
TCI preferred stock, see the discussion on preferred stock below. As with the
Trust shares, each holder of TCI common stock is be entitled to one vote for
each share on all matters submitted to the stockholders. Similarly, there is no
cumulative voting, redemption right, sinking fund provision or right of
conversion with respect to either the TCI common stock or the Trust shares. The
holder of TCI common stock will not have any preemptive rights to acquire
additional shares of TCI common stock when issued. All outstanding shares of
TCI issued in the Conversion will be fully paid and nonassessable.

DISTRIBUTIONS. All shares of the common stock of TCI are entitled to share
equally in dividends from funds legally available therefor, when, as and if
declared by the Board of Directors of TCI, and upon liquidation or dissolution
of TCI, whether voluntary or involuntary, to share equally in the assets of TCI
available for distribution to stockholders, subject to any rights of holders of
preferred stock, as discussed below. Similarly, the Declaration of Trust
provides that shareholders have no right to any dividend or distribution unless
and until the Trustees declare such dividend or distribution. The Declaration
of Trust imposes an additional requirement not contained in TCI's Articles of
Incorporation: the Trustees must furnish the shareholders with a statement in
writing not later than 60 days after the close of each fiscal year in which a
distribution is made identifying the source of the funds so distributed. There
is no obligation on the part of TCI's Board of Directors to engage in this
practice, and the Board does not currently intend to commence such a practice.
In prior years, the Trust's distribution policy provided for an annual
determination of distributions after the Trust's year end until such time as
property operations stabilized at a level producing cash flow from property
operations in excess of anticipated needs. In January 1993, the Trust's Board
of Trustees approved the resumption of quarterly distributions. TCI intends to
continue its policy of paying quarterly distributions. The minimum amount of
distributions will be determined by the amount required to continue to qualify
as a REIT under the Code, which is presently 95% of taxable income (excluding
any net capital gain).

The Declaration of Trust provides that cash distributions may be paid from
any source, in the discretion of the Trustees. In contrast, under Nevada law,
TCI may pay dividends from any source, but only if (i) TCI may continue to able
to pay its debts as they become due in the usual course of business and (ii)
TCI's total assets continue to equal or exceed the sum of its total liabilities
plus the amount that would be needed, if TCI were to

- 56 -
<PAGE>

be dissolved at the time of distribution, to satisfy the preferential rights
upon dissolution of stockholders whose preferential rights are superior to
those receiving the distribution.

PREFERRED STOCK. Unlike the Declaration of Trust, the Articles of
Incorporation of TCI authorize the issuance of up to 1,000,000 shares of
preferred stock by action of the Board of Directors without stockholder
approval, which may be issued in one or more series with such preferences,
qualifications, limitation and rights as shall be determined by the Board of
Directors of TCI. The Board of Directors may fix and determine, among other
things, (i) the distinctive designation and number of shares comprising such
series; (ii) the dividend rates payable with respect to such shares of
preferred stock (including whether and in what manner such dividends shall be
accumulated); (iii) the extent of the voting rights, if any, of such shares;
(iv) whether such shares shall be redeemable and, if so, the prices, terms and
conditions of such redemption; (v) the rights and preferences given such shares
in the event of voluntary or involuntary liquidation, dissolution or
distribution of assets; (vi) the nature of any purchase, retirement or sinking
fund provisions with respect to such shares; (vii) the nature of any conversion
rights with respect to such shares; (viii) whether the issuance of additional
shares of preferred stock shall be subject to restrictions as to issuance, or
as to the powers, preferences or other rights of any other series; (ix) the
right of the shares of such series to the benefits of conditions and
restrictions upon the creation of indebtedness of TCI or any subsidiary
thereof; and (x) any other preferences, privileges and powers, in relative
participating, optional or other special rights, and qualifications,
limitations or restrictions of such shares, as the Board of Directors may deem
advisable.

On October 20, 1998, the Board of Directors of TCI designated and authorized
the issuance of 6,000 shares of its Series A Cumulative Convertible Preferred
Stock (the "Series A Preferred Stock") with a par value of $0.01 per share and
a preference on liquidation of $100.00 per share plus payment of accrued and
unpaid dividends. In December 1998, TCI issued 5,829 shares of the Series A
Preferred Stock in connection with the acquisition of real property.

TCI is not obligated to maintain a sinking fun with respect to the Series A
Preferred Stock. The Series A Preferred Stock is non-voting except as provided
by law.

The Series A Preferred Stock is convertible at any time and from time to
time, in whole or in part, after November 1, 2003 at the option of the holders
thereof. The Series A Preferred Stock is convertible into that number of shares
of TCI common stock obtained by dividing $100.00 (plus all accrued and unpaid
dividends) by the simple average of the daily closing price of the TCI common
stock for the 5 business days ending on the last business day of the calendar
week immediately preceding the date of conversion on the principal stock
exchange on which such TCI common stock is then listed.

The Series A Preferred Stock bears a cumulative, compounded dividend per
share equal to $5.00 per annum, payable quarterly and commencing accrual upon
issuance. Dividends on the Series A Preferred Stock are in preference to and
with priority over dividends upon the TCI common stock. The Series A Preferred
Stock ranks on a parity as to dividends and upon liquidation, dissolution or
winding up with all other shares of preferred stock which may be issued in the
future by TCI.

TCI may redeem all or any of the Series A Preferred Stock at any time and
from time to time, at its option, for cash. The redemption price of the Series
A Preferred Stock shall be $100.00 per share (plus all accrued and unpaid
dividends to the date of redemption). As of December 30, 1998, 5,829 shares of
the Series A Preferred Stock were issued and outstanding.

Holders of shares of Series A Preferred Stock are not entitled to vote on
the Merger.

Although no preferred stock has been issued or is being issued as part of
the Incorporation Procedure and the Merger, and the Board of Directors has no
present intention of issuing any preferred stock, it is deemed advisable to
have such shares available for issuance (i) for possible use to raise
additional equity capital or to make acquisitions, (ii) as an acquisition
safeguard to dilute the stock ownership and voting power of a person

- 57 -
<PAGE>

or entity seeking to obtain control of TCI by (a) privately placing such
preferred stock with purchasers not hostile to the TCI Board of Directors to
oppose an unsolicited takeover bid or (b) authorizing holders of a series of
preferred stock to vote as a class, either separately or with the holders of
TCI common stock, on any merger, sale or exchange of assets or any other
extraordinary corporate transaction involving TCI or (iii) for such other uses
as the Board of Directors of TCI may deem appropriate from time to time.

In contrast, the Trust is not authorized to issue preferred shares. In
addition, Section 5.3 of the Declaration of Trust prohibits the Trustees from
issuing warrants, options or rights to buy shares, except as part of (i) a
ratable issue or distribution to stockholders, (ii) a public offering or (iii)
a financial arrangement with parties other than the Trust's advisor or
Directors, Trustees, officers, or employees of the Trust or its advisor. The
Trustees are also prohibited from issuing (a) equity securities of more than
one class (other than convertible obligations, warrants, rights and options and
regular or residual interests in REMICS); (b) "redeemable securities", as
defined in Section 2(a)(32) of the Investment Company Act of 1940, as amended,
"face-amount certificates of the installment type", as defined in Section
2(a)(15) thereof, and "periodic payment plan certificates", as defined in
Section 2(a)(27) thereof; or (c) convertible or non-convertible debt securities
to the public unless the historical cash flow of the Trust or the substantiated
future cash flow of the Trust, excluding extraordinary items, is sufficient to
cover the interest on the debt securities. The Articles of Incorporation impose
no such explicit prohibitions on TCI's power to issue securities.

DISSENTERS' RIGHTS TO DISSENT AND OBTAIN PAYMENT. Under Nevada law, TCI's
stockholders will not have the right to dissent and obtain payment with respect
to any plan of merger or exchange upon which the stockholders may be entitled
to vote for so long as TCI common stock is listed on the NYSE or is held of
record by at least 2,000 persons. TCI common stock is listed on the NYSE.

Shareholders of the Trust will not have the right to dissent and obtain
payment except under the limited circumstances described herein. Section 1300
of the California General Corporation Law ("CGCL") provides that a shareholder
of a corporation who is entitled to vote on a merger may require the
corporation to purchase for cash, at their fair market value, the shares owned
by the shareholder but only if shareholders holding 5% or more of the
corporation's common stock demand payment for such shares. While the Trust is
not a corporation, Section 1300 of the CGCL will apply to the stockholders of
the Trust once the Trust shares are converted into shares of common stock of
CME Corporation immediately prior to the Merger between CME Corporation and the
Trust.

In order for the dissenters' rights outlined in Section 1300 of the CGCL to
apply, shareholders of the Trust holding in the aggregate at least 200,855
shares of common stock of CME Corporation (which are the shares into which all
Trust shares will be converted immediately prior to the Merger) must both (A)
abstain from voting on the Merger or vote against the Merger and (B) demand
that CME Corporation purchase such shares at their fair market value.

To determine if shareholders holding 5% or more of CME Corporation's common
stock are dissenting, the only shares which will be counted will be the shares
of stockholders

(1) who make written demand upon CME Corporation for the purchase of such
shares and for payment to the shareholder in cash of the fair market
value of such shares,

(2) whose written demand is received by CME Corporation within 30 days
following the date on which CME Corporation mails notice to all
shareholders of the Trust that the Merger has been approved, and who
send to CME Corporation within such 30 day period the shareholder's
certificates representing the shares which the shareholder demands be
purchased (with an endorsement thereon that such shares are dissenting
shares) and

(3) whose written demand states the number and class of the shares held of
record by the shareholder which the shareholder demands that CME
Corporation purchase, and a statement by the shareholder

- 58 -
<PAGE>

of what the shareholder claims to be the fair market value of those
shares as of September 18, 1998.

If the Merger is approved by shareholders of the Trust and TCI, then CME
Corporation will send out to all shareholders of the Trust who did not vote in
favor of the Merger, within 10 days after the date of approval, a notice that
the Merger was approved and a statement of the price which CME Corporation has
determined represents the fair market value of the dissenting shares as of
September 18, 1998. In addition, the notice will include a brief description
of the procedure to be followed if the shareholder desires to exercise its
right to dissent.

If it is determined by CME Corporation that shareholders holding 5% or more
of the shares of common stock of CME Corporation are dissenting and if CME
Corporation and any dissenting shareholder agree upon the price of the shares,
such dissenting shareholder is entitled to the agreed price with interest
thereon at the legal rate on judgments from the date of the agreement. Payment
of the fair market value of the dissenting shares must be made within 30 days
after the parties agree on the fair market value or within 30 days after any
conditions to the Merger are satisfied, whichever is later.

If CME Corporation denies that shareholders holding 5% or more of the
shares of common stock of CME Corporation are dissenting or if CME Corporation
and any dissenting shareholder cannot agree on the fair market values of the
shares, then the dissenting shareholder, CME Corporation or TCI may sue to
determine whether the shares are dissenting or the fair market value of such
shares, as the case may be.

A dissenting shareholder will not be entitled to payment of the fair market
value of their shares if (A) the Merger is not approved, (B) the shares of
such dissenting shareholder are transferred prior to being sent to CME
Corporation or are converted into shares of TCI common stock by such
dissenting shareholder or (C) if the dissenting shareholder and CME
Corporation cannot agree upon the status of the shares as dissenting shares or
upon the purchase price of the shares and neither files suit within six months
after the date on which CME Corporation mailed notice of approval of the
Merger. In any of the foregoing cases, the dissenting shareholders' shares
will be converted into shares of TCI common stock at the Exchange Ratio.

WARRANTS. The Trust has no outstanding warrants for the purchase of shares.
TCI has no outstanding warrants and does not currently anticipate issuing any
warrants for the purchase of its capital stock.

LISTING. The Trust shares have been listed on the NASDAQ since October 29,
1980. TCI common stock has been listed on the NYSE since September 10, 1986.

NO RESTRICTIONS ON OWNERSHIP AND TRANSFER OF COMMON STOCK. Neither TCI's
Articles of Incorporation nor its Bylaws contain any restriction on the
transfer or percentage ownership of shares of TCI common stock.

In the Trustees' view, concentration of ownership of shares of TCI common
stock is unlikely to threaten TCI's continued qualification for taxation as a
REIT under the Code. In the opinion of the Trustees, the carefully designed
acquisition safeguards built into the Articles of Incorporation and Bylaws of
TCI are sufficient to meet the needs of TCI. See "-- Principal Reasons for the
Incorporation Procedure and the Merger -- Acquisition Safeguards".
Accordingly, TCI's Articles of Incorporation and Bylaws do not contain
restrictions on voting rights of "Excess Shares" of the TCI common stock, and
the certificates representing shares of TCI common stock will contain no
legend to that effect.

STOCKHOLDER-MANAGEMENT RELATIONS

THE CONSENT PROVISION. The Consent Provision (Article EIGHTH of the
Articles of Incorporation) provides that stockholders of TCI may not act
without a duly called annual or special meeting except by written consent
setting forth the action to be taken and signed by all of the stockholders
entitled to vote thereon. Under the NRS, unless otherwise provided in a
corporation's articles of incorporation, any action

- 59 -
<PAGE>

which is required or permitted to be taken at an annual or special meeting of
stockholders may instead be taken without a meeting if a written consent
setting forth the action to be taken is signed by stockholders holding at least
a majority of the voting power, or of such greater proportion as is required
for such action. Unlike the TCI Articles of Incorporation, the Declaration of
Trust permits shareholders of the Trust to approve certain acts by written
consent without a meeting if such consent sets forth the action so taken and is
signed by holders of the majority of the outstanding Trust shares.

For all practical purposes, the Consent Provision would allow stockholders
to act only at an annual or special meeting. By effectively prohibiting
stockholders from acting without a meeting, the Consent Provision ensures that
all stockholders will have the opportunity to consider any matter that could
affect their rights. However, such a limitation on a major stockholder's
ability to act could conceivably adversely affect a potential major
stockholder's decision to purchase voting securities of TCI.

THE STOCKHOLDER MEETING PROVISION. The Stockholder Meeting Provision (also
set forth in Article EIGHTH of the Articles of Incorporation) provides that
subject to the rights of the holders of any series of preferred stock, special
meetings of stockholders may be called only by the Board of Directors, the
Chairman of the Board or the President of TCI. Stockholders of TCI may not by
themselves call a special meeting of stockholders. In contrast to the
Stockholder Meeting Provision, the Declaration of Trust permits its
shareholders to call special meetings upon the written request of shareholders
holding not less than 10% of the outstanding shares of the Trust entitled to
vote in the manner provided in the Trustees' Regulations. The Trustees'
Regulations further provide that special meetings of shareholders may be called
at any time by the President or the Trustees or by any two or more Trustees, or
by one or more shareholders holding not less than two-thirds of the outstanding
shares of the Trust.

The Stockholder Meeting Provision would have the effect of inhibiting
stockholder actions that require a meeting of stockholders unless the Board of
Directors, the Chairman thereof or the President of TCI calls such a meeting.
Such meetings can impose considerable expenses upon TCI. The Trustees believe
that the Board of Directors are in the best position to determine those issues
which are properly the subject of a special meeting of stockholders. In the
view of the Board of Trustees, stockholders would have a full opportunity to
make proper proposals at duly convened stockholder meetings and to request that
any such proposal be presented for consideration to other stockholders in TCI's
annual proxy statement.

OTHER PROVISIONS REGARDING STOCKHOLDER-MANAGEMENT RELATIONS. TCI's Bylaws
provide, among other things, that any stockholder entitled to vote in the
election of Directors of TCI's Board of Directors generally may nominate one or
more persons for election as Directors at a meeting only if such stockholder
gives not fewer than 35 nor more than 60 days' prior written notice of intent
to make such nomination or nominations to the Secretary of TCI (or, if fewer
than 45 days' notice or prior public disclosure of the meeting date is given or
made to stockholders, not later than 10 days following such notice or
disclosure). Each such notice must set forth (i) the name and address of the
stockholder who intends to make the nomination and of the person or persons to
be nominated; (ii) the class and number of shares of stock held of record,
owned beneficially and represented by proxy by such stockholder as of the
record date for the meeting and as of the date of such notice; (iii) a
representation that the stockholder intends to appear in person or by proxy at
the meeting to nominate the person or persons specified in the notice; (iv) a
description of all arrangements or understandings between the stockholder and
each nominee and any other person or persons pursuant to which the nomination
or nominations are to be made by the stockholder; (v) such other information
regarding each nominee proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Commission; and (vi) the consent of each nominee to serve as a Director of TCI
if so elected. The Chairman of the meeting may refuse to acknowledge the
nomination of any person not made in compliance with the foregoing procedure,
which is referred to herein as the "Nomination Provision". Neither the
Declaration of Trust nor the Trustees' Regulations contains any provisions
analogous to the Nomination Provision.

- 60 -
<PAGE>

Although the Nomination Provision does not give TCI's Board any power to
approve or disapprove of stockholder nominations for the election of directors,
the Nomination Procedure may have the effect of precluding a nomination for the
election of directors at a particular annual meeting if the proper procedures
are not followed and may discourage or deter a third party from conducting a
solicitation of proxies to elect its own slate of directors or otherwise
attempting to obtain control of TCI, even if such attempt might be deemed by
some stockholders to be beneficial to TCI and its stockholders. The Board of
Trustees is currently unaware of any controlling judicial precedent addressing
the validity of the Nomination Provision and therefore the matter is not
entirely free from doubt. The Board of Trustees nevertheless believes that this
provision is beneficial because it requires stockholders to give adequate
notice to allow orderly and considered evaluation of nominees and fair
elections.

TCI's Bylaws also provide that, in addition to any other applicable
requirements, for business not specified in the notice of meeting or brought by
or at the direction of the Board of Directors of TCI to be properly introduced
by a stockholder, the stockholder must give not fewer than 35 nor more than 60
days' prior notice to the Secretary of TCI (or if fewer than 45 days' notice or
prior public disclosure of the meeting date is given or made to stockholders,
not later than 10 days following such event). This provision (the "Stockholder
Proposal Provision") does not preclude discussion by any stockholder of any
business properly brought before any meeting. Each such notice must set forth
(i) a description of each item of business proposed to be brought before the
meeting; (ii) the name and address of the stockholder proposing to bring such
item of business before the meeting; (iii) the class and number of shares of
stock held of record, owned beneficially and represented by proxy by such
stockholder as of the record date for the meeting and as of the date of such
stockholder meeting notice; and (iv) all other information that would be
required to be included in a proxy statement filed with the Commission. Neither
the Declaration of Trust nor the Trustees' Regulations contains any provisions
analogous to the Stockholder Proposal Provision.

Although the Stockholder Proposal Provision does not give TCI's Board of
Directors or the Chairman of the meeting any powers to approve or disapprove
such matters, the Stockholder Proposal Provision may have the effect of
precluding the consideration of matters at a particular meeting if the proper
procedures are not followed, even if approval of such matters may be deemed by
some stockholders to be beneficial to TCI and its stockholders. TCI is
presently unaware of any controlling judicial precedent addressing the validity
of the Stockholder Proposal Provision and therefore the matter is not entirely
free from doubt. As with the Nomination Provision, the Trustees believe that
the Stockholder Proposal Provision is beneficial because it requires
stockholders to give both management and other stockholders adequate notice of
such proposals and time to consider and respond to such proposals.

TCI's Bylaws also provide that annual meetings of stockholders shall be held
within the first eight months of the calendar year, or as soon as practicable
thereafter, beginning in 1997. Written or printed notice of annual and special
meetings of stockholders shall be given to stockholders entitled to vote not
fewer than 10 nor more than 60 days before the date of such meeting, unless
stockholders are to vote upon a proposed merger, consolidation or disposition
of substantially all of TCI's assets, in which case notice shall be given no
later than 20 nor more than 60 days before the date of such meeting. The
Declaration of Trust contains similar provisions except that pursuant to the
Declaration of Trust annual meetings of shareholders are to be held in the
first six months of the calendar year.

A full and correct statement of the affairs of TCI is to be prepared
annually and submitted at the annual meeting. Such annual reports will include
a balance sheet and a statement of operations for the preceding fiscal year.
TCI is subject to the information requirements of the Exchange Act and the
balance sheet and statement of operations are required by the Exchange Act to
be certified by independent certified public accountants, although the Bylaws
do not impose such a requirement. The Declaration of Trust provides that the
Trustees must mail an annual report not later than 120 days after the close of
each fiscal year. The annual report must include a statement of assets and
liabilities and a statement of income and expenses of the Trust, accompanied by
the report of an independent certified public accountant. The Trustees are also
required to send shareholders interim reports at least quarterly.

- 61 -
<PAGE>

THE BUSINESS COMBINATION PROVISION. Article TENTH of the Articles of
Incorporation (the "Business Combination Provision" is designed to encourage
companies interested in acquiring TCI to negotiate with the Board of Directors
and to give greater assurance to the stockholders of TCI that they will receive
fair and equitable treatment in the event of a "Business Combination" (as
defined below) involving TCI or a subsidiary thereof with, or proposed by or on
behalf of, an "Interested Stockholder" (as defined below) or certain related
parties.

Under Article TENTH of the Articles of Incorporation, a Business Combination
with, or proposed by or on behalf of, any Interested Stockholder or any
affiliate or associate (as such terms are defined in Rule 12b-2 promulgated
under the Exchange Act) of any Interested Stockholder or any Person who
thereafter would be an affiliate or associate of any Interested Stockholder
would require approval by the affirmative vote of not less than sixty-six and
two-thirds of the votes entitled to be cast on such transaction by the holders
of all shares of voting stock of TCI then outstanding (the "Voting Stock"),
voting together as a single class, excluding shares beneficially owned by such
Interested Stockholders. However, the two-thirds affirmative vote of
stockholders is not required if a majority of the members of the Board of
Directors or, in the case of such Business Combination involving any affiliate
of TCI, a majority of the Board of Directors including a majority of the
members of the Board of Directors who at the time are neither officers or
employees of TCI nor directors, officers or employees of TCI's advisor,
approves the Business Combination prior to the date on which the Interested
Stockholder became the beneficial owner of 20% or more of TCI's shares (the
"Acquisition Date"). If such prior Board of Director's approval is obtained,
the Business Combination will be subject to the applicable voting requirement
under the NRS. Presently, for most types of Business Combination transactions
on which a stockholder vote would be required, the affirmative vote of the
holders of a majority of the outstanding shares entitled to vote on the matter
(including shares beneficially owned by the Interested Stockholder) is
required. If the two-thirds vote required by the Business Combination Provision
is obtained in connection with a particular proposed Business Combination,
approval of a majority of TCI's Board of Directors is not be necessary. Under
certain circumstances a business combination will be presumed to be proposed by
or on behalf of an Interested Stockholder unless a majority of the members of
the Board of Directors determines otherwise.

An "Interested Stockholder" is defined in the Business Combination Provision
to include any Person who (i) is or has announced or publicly disclosed a plan
or intention to become, the Beneficial Owner of 20% or more of the Voting Stock
or (ii) is an affiliate or associate of TCI and at any time within the two year
period immediately prior to the date in question was the Beneficial Owner of
20% or more of the Voting Stock. A person is the "Beneficial Owner" of Voting
Stock that such person and certain related parties, directly or indirectly, own
or have the right to acquire, hold, vote or dispose of or has beneficial
ownership of. TCI, any of its subsidiaries and certain profit-sharing and
employee-benefit plans are among the entities specifically excepted from the
definition of "Interested Stockholder."

ART is currently considered an Interested Stockholder of TCI and will remain
an Interested Stockholder following the Incorporation Procedure and the Merger.
Currently the Board of Directors is not aware of any other stockholder or group
of stockholders that is an Interested Stockholder or that would be an
"Interested Stockholder" following the Incorporation Procedure and the Merger.

A "Business Combination" includes the following transactions with, or
proposed by or on behalf of, any Interested Stockholder or certain related
parties: (i) a merger or consolidation of TCI or any subsidiary with an
Interested Stockholder or certain related parties, (ii) the sale, lease,
exchange, mortgage, pledge, transfer or other disposition by TCI or a
subsidiary of any assets or securities to an Interested Stockholder or certain
related parties, or any other arrangement with or for the benefit of an
Interested Stockholder or any such related party (including investments, loans,
advances, guarantees, extensions of credit, security interests and joint
venture participation) that (except in certain circumstances), together with
all other such arrangements (including all contemplated future events), involve
assets or securities having a value (or involving aggregate

- 62 -
<PAGE>

commitments) of $5 million or more or constitute more than 5% of the book value
of the total assets (in the case of transactions involving assets or
commitments other than capital stock) or 5% of the stockholders equity (in the
case of transactions in capital stock) of the entity in question, as reflected
in the most recent fiscal year-end consolidated balance sheet of such entity
existing at the time the stockholders of TCI would be required to approve or
authorize such transaction, (iii) the adoption of any plan or proposal for the
liquidation or dissolution of TCI, (iv) any reclassification of securities,
recapitalization, merger with a subsidiary or other transaction which has the
effect, directly or indirectly, of increasing an Interested Stockholder's
proportionate share of the outstanding capital stock of TCI or a subsidiary or
(v) any agreement or arrangement providing for any one or more of the actions
specified in the foregoing clauses (i) through (iv).

By providing that the two-thirds vote requirement would not be invoked if a
majority of TCI's Board of Directors approves a Business Combination prior to
the Acquisition Date, the Business Combination Provision is intended to
encourage companies interested in acquiring TCI to negotiate in advance with
TCI's Board of Directors. See "-- Principal Reasons for the Incorporation
Procedure and the Merger -- Acquisition Safeguards". The Business Combination
Provision may discourage attempts to take over TCI by a principal stockholder.
By requiring a two-thirds vote of stockholders other than the relevant
Interested Stockholder to approve a Business Combination not approved by TCI's
Board of Directors, the Business Combination Provision may enable a minority of
TCI's stockholders to prevent consummation of a Business Combination. To the
extent that the Business Combination Provision discourages tender offers or the
accumulation of Nevada Common Stock by a third party, stockholders may be
deprived of higher market prices for their stock which may result from such
events.

Article TENTH effectively allows the Board of Directors to waive the
requirement that any Business Combination with, or proposed by or on behalf of,
any Interested Stockholder requires the approval of not less than two-thirds of
the votes cast by the holders of all shares of Voting Stock (excluding Voting
Stock owned by such Interested Stockholder). If a majority of the members of
the Board of Directors or, in the case of such Business Combination involving
any affiliate of TCI, a majority of the Board of Directors including a majority
of the members of the Board of Directors who at the time are neither officers
or employees of TCI nor directors, officers or employees of TCI's advisor,
approves such Business Combination prior to the Acquisition date, such Business
Combination requires only such affirmative vote, if any, as is required by
applicable law or by any other provision of the Articles of Incorporation or
Bylaws or by any agreement with any national securities exchange.

The NRS imposes generally similar restrictions upon certain business
combinations with interested stockholders of a Nevada corporation, but, among
other differences, the NRS defines the terms "business combination" and
"interested stockholder" differently and, unlike Article TENTH of the Articles
of Incorporation, Nevada law subjects certain business combinations with
interested stockholders to a three-year moratorium unless specified conditions
are met. The NRS prohibits a Nevada corporation from engaging in a "business
combination" with an "interested stockholder" for three years following the
date that such person becomes an "interested stockholder." With certain
exceptions, an "interested stockholder" is a person or group that owns 10% or
more (compared to more than 20% under Article TENTH of the Articles of
Incorporation) of such corporation's outstanding voting stock, or is an
affiliate or associate of the corporation and was the beneficial owner of 10%
or more of such voting stock at any time within the previous three years.

However, a Nevada corporation may elect not to be governed by the Business
Combination provisions of Nevada law by expressly electing not to be governed
by such statutes in the original Articles of Incorporation or an amendment
thereto. Because TCI's Board of Directors believes that the Business
Combination Provision offers sufficient protection, Article TENTH of the
Articles of Incorporation contains a provision expressly electing not to be
governed by NRS statutes governing business combinations with interested
stockholders (NRS Sections 78.411 through 78.444, inclusive) and acquisitions
of a controlling interest (NRS Sections 78.378 through 78.3793, inclusive).

- 63 -
<PAGE>

California has adopted legislation that has certain anti-takeover
implications. Although the California Corporations Code does not specifically
apply to business trusts, certain of its provisions could be applied to
business trusts by analogy. If the proposed Incorporation Procedure and the
Merger are adopted, such legislation will not apply to TCI.

Sections 1101 and 407 of the California General Corporation Law require that
holders of nonredeemable common stock receive nonredeemable common stock in a
merger of the corporation with the holder of more than 50% but less than 90% of
such common stock or its affiliate unless either (i) all of the holders of such
common stock consent to the transaction or (ii) the terms and conditions of the
transaction and the fairness of such terms and conditions have been approved by
the appropriate state regulatory agency. This provision of California law may
have the effect of making a "cash-out" merger by a majority shareholder more
difficult to accomplish. Nevada law has no comparable provision. California law
also requires that shareholders be provided with a fairness opinion under
certain circumstances when a tender offer or a proposal for a reorganization or
for a sale of assets is made by an interested party. Again, Nevada law has no
comparable provision.

THE EVALUATION PROVISION. Article TWELFTH of the Articles of Incorporation
(the "Evaluation Provision") permits the Board of Directors to take into
account all factors it deems relevant in evaluating, among other things, tender
offers, proposals of business sales or combinations and proposals for corporate
liquidation or reorganizations involving TCI, including the potential impact of
any such transaction on TCI's creditors, partners, joint venturers, other
constituents or TCI and the communities in which its offices, other
establishments or investments are located (collectively, "Non-Stockholder
Constituencies") and on TCI's continuing status as a qualified REIT under the
Code.

The Evaluation Provision does not specify the relative weight that the Board
of Directors should give to the various factors. Under the Evaluation
Provision, the Board of Directors might, for example, take into account whether
a potential acquiror proposed to use TCI's assets to finance an acquisition of
TCI and the effect that such use of TCI's assets might have on its Non-
Stockholder Constituencies, if any, and its REIT status. The Trustees believe
that consideration of the effect of a business combination proposal on TCI's
Non-Stockholder Constituencies and REIT status help to maintain or improve the
financial condition of TCI and, as a result, confer related benefits upon its
stockholders. However, because the Evaluation Provision allows the Board of
Directors to consider numerous judgmental or subjective factors affecting such
a proposal, including certain non-financial matters, their consideration may
lead the Board of Directors to oppose a transaction that, as an exclusively
financial matter, may be attractive to stockholders.

The Declaration of Trust does not contain any provision similar to the
Evaluation Provision. Courts construing California law have held that the
decisions of California corporate directors in evaluating takeover bids
generally are protected by the "business judgment rule," under which a court
will not question the directors' business judgment so long as they act in
accordance with their fiduciary duties to the corporation and to all of the
stockholders. The Trustees are currently unaware of any judicial precedent
construing California law that addresses the question of whether corporate
directors (and, by analogy, trustees of unincorporated business trusts) may
consider the interests of Non-Stockholder Constituencies or whether the
consideration of such interests would be protected by the "business judgment
rule".

The NRS expressly provides that directors in evaluating acquisition
proposals may consider certain interests of Non-Stockholder Constituencies
including (i) the interests of the corporation's employees, suppliers,
creditors and customers; (ii) the economy of the state and nation; (iii) the
interests of the community and of society; and (iv) the long term as well as
short term interests of the corporation and its stockholders, including the
possibility that these interests may be best served by the continued
independence of the corporation.

ESTABLISHMENT OF SUBSIDIARIES

Under Section 3.5 of the Declaration of Trust, a vote of two-thirds of the
Trustees and holders of a majority of the shares voting at a meeting called for
such purpose is required for the formation of a subsidiary to hold all or part
of the Trust's assets. There exists no comparable provision in the Articles of
Incorporation.

- 64 -
<PAGE>

AMENDMENT PROVISIONS

The Bylaw Amendment Provision and the Articles of Incorporation Amendment
Provision (each as defined below) generally require a super-majority vote for
changes in the governing documents of TCI submitted to stockholders. Although
those provisions may by themselves have a deterrent effect on some potential
acquisitions of TCI, they are designed primarily to ensure that an acquiror
cannot circumvent the acquisition safeguards contained in the governing
documents. See "-- Principal Reasons for the Incorporation Procedure and
Merger -- Acquisition Safeguards" and "-- Comparison of Principal Differences
Between the Trust and TCI". The Trustees recognize that the amendment
provisions may serve to entrench current management (see "-- Principal Reasons
for the Incorporation Procedure and the Merger -- Acquisition Safeguards" and
"-- Possible Negative Considerations"); however, for the same reasons the
Trustees deem acquisition safeguards to be in the best interest of TCI and its
stockholders, the amendment provisions are required to buttress those
safeguards.

THE BYLAW AMENDMENT PROVISION. Article SEVENTH of the Articles of
Incorporation (the "Bylaw Amendment Provision") expressly authorizes TCI's
Board of Directors to make, adopt, alter, amend, change or repeal TCI's Bylaws.
The Bylaw Amendment Provision further states that the stockholders of TCI may
not make, adopt, alter, amend, change or repeal TCI's Bylaws except upon the
affirmative vote of holders of not less than 75% of the outstanding stock of
TCI entitled to vote thereon. The TCI Board of Directors is currently unaware
of any controlling judicial precedent under the NRS addressing the validity of
this aspect of the Bylaw Amendment Provision and, therefore, the matter is not
entirely free from doubt. This super-majority voting provision could enable
holders of only 26% of TCI common stock to prevent holders of a substantial
majority of TCI common stock who do not approve of certain provisions of the
Bylaws from amending or repealing such provisions. In this regard, it should be
noted that entities affiliated with certain executive officers of TCI have
collective beneficial ownership of 44.9% of TCI common stock (as of November
20, 1998). Nevertheless, TCI's Board of Directors believes that the Bylaw
Amendment Provision will help to ensure continuity with respect to the
management of the day-to-day operations of TCI. In addition, the provision will
prevent a purchaser who acquires a majority of the shares of the TCI common
stock from adopting Bylaws that are not in the best interest of the minority
stockholders or repealing Bylaws that are in such stockholders' interest.

Section 3.3 of the Declaration of Trust vests in the Trustees the power to
make, adopt, amend or repeal Trustees' Regulations. Nevertheless, the Trustees'
Regulations provide that the Trustees' powers to make, adopt, amend or repeal
the Trustees' Regulations may be revoked either by vote or written consent of
two-thirds of the shareholders.

THE ARTICLES OF INCORPORATION AMENDMENT PROVISION. Article SEVENTEENTH of
the Articles of Incorporation (the "Articles of Incorporation Amendment
Provision") requires the affirmative vote of at least 75% of all of the Voting
Stock to alter, amend or repeal the Bylaw Amendment Provision, Consent
Provision, Stockholder Meeting Provision, Business Combination Provision,
Director Removal Provision, Evaluation Provision and Articles of Incorporation
Amendment Provision, unless a majority of TCI's Board of Directors approves
such alteration, amendment or repeal.

In contrast, the Declaration of Trust generally may be amended (i) by
shareholders holding a majority of the outstanding shares entitled to vote
thereon or (ii) by the Trustees without the vote or consent of shareholders to
the extent they deem it necessary to conform the Declaration of Trust to REIT
requirements or other applicable federal law, unless the proposed amendment
would change certain rights with respect to any outstanding securities of the
Trust, in which case the Declaration of Trust requires the vote or consent of
the holders of two-thirds of the outstanding shares entitled to vote thereon.

Although the Declaration of Trust already requires a super-majority vote for
certain proposed amendments, the Articles of Incorporation Amendment Provision
will make it more difficult for stockholders to make changes in the Articles of
Incorporation, including changes designed to enable holders of a majority of
TCI

- 65 -
<PAGE>

common stock to obtain control over TCI. However, the Articles of Incorporation
Amendment Provision may help protect minority stockholders from disadvantageous
changes supported by less than a substantial majority of other stockholders.

THE FOREGOING IS ONLY A SUMMARY OF THE SIMILARITIES AND DIFFERENCES BETWEEN
TCI'S ARTICLES OF INCORPORATION AND BYLAWS, ON THE ONE HAND, AND THE TRUST'S
DECLARATION OF TRUST AND TRUSTEES' REGULATIONS, ON THE OTHER. THE COMPLETE
TEXTS OF THOSE DOCUMENTS MAY BE REFERRED TO BY STOCKHOLDERS AND ARE EITHER
FILED OR INCORPORATED BY REFERENCE AS EXHIBITS TO THE REGISTRATION STATEMENT.

MATERIAL FEDERAL INCOME TAX CONSEQUENCES

The following discussion is a summary of the material U.S. federal income
tax consequences of the Incorporation Procedure and the Merger to a shareholder
of the Trust. The discussion is based on the Code, the Treasury Regulations
promulgated thereunder (the "Treasury Regulations"), administrative rulings and
pronouncements and judicial decisions as of the date hereof, all of which are
subject to change (possibly with retroactive effect).

This discussion does not address all aspects of U.S. federal taxation that
may be relevant to particular shareholders of the Trust in light of their
personal investment circumstances or to shareholders of the Trust subject to
special treatment under the Code (including banks, tax-exempt organizations,
insurance companies, dealers in securities or foreign currency, shareholders of
the Trust who received their Trust shares through the exercise of employee
stock options or otherwise as compensation, shareholders of the Trust who are
not U.S. persons (under the Code) and shareholders of the Trust who hold their
Trust shares as part of a straddle, hedge or conversion transaction). In
addition, this discussion does not address any foreign, state or local tax
consequences of the Incorporation Procedure or the Merger. For purposes of this
discussion, a holder of depositary receipts will be treated as holding a direct
interest in the underlying securities.

Each shareholder of the Trust is urged to consult his or her own tax advisor
as to the particular tax consequences to him or her of the Incorporation
Procedure and the Merger, including the applicability and effect of U.S.
federal, foreign, state, local and other tax laws.

In the opinion of Andrews & Kurth L.L.P., counsel to TCI, the Incorporation
Procedure and the Merger should be treated for federal income tax purposes as
two separate reorganizations within the meaning of Section 368(a) of the Code.
The Trust and CME Corporation should each be a party to the Incorporation
Procedure reorganization within the meaning of Section 368(b) of the Code. TCI
and CME Corporation should each be a party to the Merger reorganization within
the meaning of Section 368(b) of the Code. In that event as a result of both
the Incorporation Procedure and the Merger,

(i) no gain or loss will be recognized by shareholders of the Trust who
receive TCI common stock pursuant to the Incorporation Procedure and
the Merger in exchange for Trust shares;

(ii) the tax basis of TCI common stock received by shareholders of the
Trust pursuant to the Incorporation Procedure and the Merger will be
the same as the tax basis in the Trust shares exchanged therefor;

(iii) the holding period of TCI common stock received by holders of the
Trust shares pursuant to the Incorporation Procedure and the Merger
will include the holding period of the Trust shares surrendered in
exchange therefor; and

(iv) no gain or loss will be recognized by the Trust, CME Corporation or
TCI as a result of the Incorporation Procedure or the Merger.

Notwithstanding the foregoing, cash received in lieu of a fractional share
interest in TCI common stock will be treated as if such fractional share was
actually received and then redeemed for cash, and in general,

- 66 -
<PAGE>

gain or loss will be recognized, measured by the difference between the amount
of cash received and the basis of the Trust shares allocable to such fractional
share. In general, such gain or loss will constitute capital gain or loss if
the Trust shares were held as capital assets at the Effective Time. Any capital
gain recognized as a result of the Merger will be taxed at rates applicable to
capital gains.

Furthermore, if the liabilities of the Trust exceeds the Trust's adjusted
basis of its assets the Trust will recognize gain equal to such excess. The
Trust does not expect its liabilities to exceed its assets' adjusted basis.

If the Incorporation Procedure does not qualify as a tax-free reorganization
for federal income tax purposes, the Incorporation Procedure would be treated
as a liquidation of the Trust and a deemed pro rata distribution of the Trust
assets to the holders of Trust shares, followed by the incorporation and
contribution of such assets to CME Corporation and, accordingly,

(i) a holder of Trust shares would recognize gain or loss, measured by the
difference between the fair market value of the Trust assets deemed to
have been distributed to the shareholder and the shareholder's basis in
the Trust shares exchanged therefor. Such gain or loss would constitute
capital gain or loss if the Trust shares were held as capital assets at
the Effective Time;

(ii) the tax basis of the CME Corporation common stock received in
connection with the Incorporation Procedure by a shareholder of the
Trust would be its fair market value at the Effective Time; and

(iii) the holding period of TCI common stock received by a shareholder of
CME Corporation pursuant to the Merger would commence on the day
following the date of the Effective Time.

Further, if the Incorporation Procedure did not qualify as a tax-free
reorganization, the Trust would recognize gain or loss equal to the difference
between the Trust's basis in its assets and the sum of the fair market value of
the consideration provided by CME Corporation in the Incorporation Procedure
and the liabilities assumed by CME Corporation. The consideration provided by
CME Corporation would be treated as distributed by the Trust in liquidation. In
computing its taxable income for its taxable year ended on the date of the
Incorporation Procedure, the Trust would generally be entitled to a dividends
paid deduction equal to the fair market value of the consideration provided by
CME Corporation and received by the shareholders of the Trust. In addition, if
the Trust would recognize built-in gain with respect to certain assets
previously acquired from a C corporation in a carryover basis transaction, the
gain would be subject to a corporate level tax under a Treasury Regulation
announced by the Internal Revenue Service but not yet issued. However, the
Trust does not believe that it has any such built-in gain. CME Corporation
would succeed to any tax liability of the Trust in the Incorporation Procedure.

If the Merger did not qualify as a tax-free reorganization for federal
income tax purposes, the Merger would be treated as a taxable exchange and,
accordingly,

(i) a holder of CME Corporation common stock would recognize gain or loss,
measured by the difference between the fair market value of TCI common
stock and cash received and the CME Corporation shareholder's basis in
the CME Corporation common stock exchanged therefor. Such gain or loss
would constitute capital gain or loss if the CME common stock were held
as capital assets at the Effective Time;

(ii) the tax basis of the TCI common stock received in connection with the
Merger by a shareholder of CME Corporation would be its fair market
value at the Effective Time; and

(iii) the holding period of TCI common stock received by a shareholder of
CME Corporation pursuant to the Merger would commence on the day
following the date of the Effective Time.

- 67 -
<PAGE>

Further, if the Merger did not qualify as a tax-free reorganization, CME
Corporation would recognize gain or loss equal to the difference between CME
Corporation's basis in its assets and the sum of the fair market value of the
consideration provided by TCI in the Merger and the liabilities assumed by TCI.
The consideration provided by TCI would be treated as distributed by CME
Corporation in liquidation. In computing its taxable income for its taxable
year ended on the date of the Merger, CME Corporation would generally be
entitled to a dividends paid deduction equal to the fair market value of the
consideration provided by TCI and received by the shareholders of CME
Corporation. In addition, if CME Corporation would recognize built-in gain with
respect to certain assets previously acquired from a C corporation in a
carryover basis transaction, the gain would be subject to a corporate level tax
under a Treasury Regulation announced by the Internal Revenue Service but not
yet issued. However, CME Corporation does not believe that it have any such
built-in gain. TCI would succeed to any tax liability of CME Corporation in the
Merger.

CERTAIN FOREIGN, STATE AND LOCAL TAXES

If the Incorporation Procedure and the Merger are consummated, TCI may
become subject to state franchise or income taxes in addition to those which
the Trust is already obligated to pay. Management of the Trust believes that
the net effect on TCI of any additional state franchise or income taxes will
not be material.

No determination has been made as to how the proposed Incorporation
Procedure and the Merger would be treated under the various foreign, state or
local tax laws that might apply to shareholders, including without limitation
ad valorem tax laws in effect in the various states. Shareholders should
consult their own tax advisors as to the effect of the Incorporation Procedure
and the Merger on their individual tax liability under applicable foreign,
state or local tax laws.

The Board of Trustees is not aware of any license, regulatory permit or of
any approval by any domestic or foreign governmental or administrative agency
that would be required to effect the Incorporation Procedure and the Merger.

GENERAL PROVISIONS OF THE MERGER AGREEMENT

The Board of Directors of TCI and the Board of Trustees of the Trust have
unanimously approved the Merger Agreement which provides for the Merger to
occur at the Effective Time, with TCI continuing as the surviving corporation.
This section of the Joint Proxy Statement/Prospectus describes certain aspects
of the proposed Incorporation Procedure and the Merger, including certain
provisions of the Merger Agreement. The description of the Merger Agreement
contained in this Joint Proxy Statement/Prospectus does not purport to be
complete and is qualified in its entirety by reference to the Merger Agreement,
a copy of which is attached hereto as Appendix B and which is incorporated
herein by reference. All stockholders of TCI and shareholders of the Trust are
urged to read carefully the Merger Agreement in its entirety.

CONDITIONS TO CONSUMMATION OF THE INCORPORATION PROCEDURE AND THE MERGER

Each party's obligation to effect the Merger is subject to the satisfaction
or waiver on or prior to the Closing Date of various conditions which include,
in addition to other customary closing conditions, the following:

(1) the stockholders of TCI and the shareholders of the Trust having
approved the Merger Agreement;

(2) the representations and warranties of TCI and the Trust contained in
the Merger Agreement must be true, complete and accurate as of the date
when made and at and as of the Closing Date as though such
representations, warranties and statements were made at and as of such
date (except for breaches of such representations, warranties and
statements which would, in aggregate, not cause a Material Adverse
Effect (defined below) regarding TCI, the Trust, the Trust's business
or its assets);

- 68 -
<PAGE>

(3) the Trust and TCI must have performed and complied with all agreements,
obligations and conditions required by the Merger Agreement to be so
performed or complied with by it at or prior to the Closing;

(4) on the Closing Date, there cannot be any effective injunction, writ,
preliminary restraining order or any order of any nature issued by a
court of competent jurisdiction restraining or prohibiting the
consummation of the Incorporation Procedure and the Merger;

(5) there cannot be threatened, instituted or pending any suit, action,
investigation, inquiry or other proceeding by or before any court or
governmental or other regulatory or administrative agency or commission
requesting or looking toward an order, judgment or decree that (i)
restrains or prohibits the consummation of the Incorporation Procedure
and the Merger or (ii) would have a Material Adverse Effect on the
business, operations, condition (financial or otherwise), liabilities,
the assets of the Trust or earnings of TCI after the Closing;

(6) all licenses, permits, approvals and authorizations of all third
parties and governmental bodies and agencies (including, without
limitation, SEC approval of this Joint Proxy Statement/Prospectus),
must have been obtained in the reasonable determination of TCI in
connection with (a) the execution and delivery by each of the parties
of the Merger Agreement, (b) the consummation by each of the parties of
the transactions contemplated thereby or (c) the conduct by TCI after
the Merger of the business of the Trust substantially as conducted
previously, except those consents and approvals which, if not obtained,
would not reasonably be expected to result, in the aggregate, in a
Material Adverse Effect;

(7) except as specifically disclosed in the Merger Agreement or by the
Trust in connection with the Merger Agreement, the events occurring
since December 31, 1997, and the conditions arising since such date
shall not, in the aggregate, have resulted in, or with the passage of
time or otherwise, reasonably be expected to result in, a Material
Adverse Change regarding TCI or the Trust, the business of the Trust or
the assets of the Trust;

(8) TCI and the Trust each shall have received the opinion of Andrews &
Kurth L.L.P. to the effect that the Incorporation Procedure and the
Merger constitute tax-free reorganizations within the meaning of
Section 368(a) of the Code; and

(9) the Registration Statement shall have been declared effective, and no
stop order suspending the effectiveness of the Registration Statement
shall be in effect and no proceedings for such purpose shall be pending
before or threatened by the Commission.

A "Material Adverse Change" or "Material Adverse Effect" means, with respect
to any party, any change, occurrence or effect (direct or indirect) on the
business, operations, properties (including tangible properties), condition
(financial or otherwise), assets, prospects (solely to the extent such
prospects are related to events specifically involving the affected party),
obligations or liabilities (whether absolute, contingent or otherwise and
whether due or to become due) of such party and its subsidiaries taken as a
whole that reasonably could be expected to exceed $5,000,000. "Material" or
"materially" or words of like effect shall (unless otherwise so provided) refer
to items capable of producing a monetary effect of at least $5,000,000 on the
business, operations, properties (including intangible properties), condition
(financial or otherwise), assets, prospects (solely to the extent such
prospects are related to events specifically involving the affected party),
obligations or liabilities (whether absolute, contingent or otherwise and
whether due or to become due) of the relevant party and its subsidiaries taken
as a whole.

NO SOLICITATION

The Merger Agreement provides that prior to the Closing, the Trust shall
not, and shall not permit any of its officers, Trustees or other
representatives to, directly or indirectly, encourage, solicit or initiate or
(except as set forth below) participate in negotiations with, or (except as set
forth below) provide any information or assistance to, any person (other than
TCI and its representatives) concerning any merger, sale of securities, sale

- 69 -
<PAGE>

of the assets of the Trust or similar transaction involving the Trust or any of
the assets of the Trust (a "Transaction"), other than the transactions
contemplated between the parties by the Merger Agreement. In the event that the
Board of Trustees of the Trust makes a reasonable determination that its
fiduciary obligations require it to negotiate with or provide information to an
unsolicited third party regarding a Transaction, the Trust must notify TCI
promptly of the existence of such negotiations and the names of each person,
other than the Trust, participating in discussions regarding such a
Transaction, although the Trust may engage in such negotiations notwithstanding
such prohibition.

TERMINATION

The Merger Agreement may be terminated at any time prior to the Merger,
whether before or after adoption thereof by the stockholders of the Trust or
TCI:

(1) by mutual agreement of the Trust and TCI;

(2) by TCI, on or after June 30, 1999, if (i) any of the conditions
precedent to the Merger contained in the Merger Agreement have not been
met or, to the extent permitted by applicable law, have not been waived
in writing by TCI prior to such date; or

(3) by the Trust, on or after June 30, 1999, if (i) any of the conditions
precedent to the Merger contained in the Merger Agreement have not been
met or, to the extent permitted by applicable law, have not been waived
in writing by the Trust prior to such date.

In the event of termination of the Merger Agreement by the Trust or TCI,
written notice thereof shall promptly be given to the other parties and the
transactions contemplated by the Merger Agreement shall be terminated, without
further action by any party. The Merger Agreement does not provide the payment
of any termination fees if the Merger Agreement is terminated.

CONDUCT OF THE BUSINESS PENDING THE MERGER

Pursuant to the Merger Agreement, the Trust and TCI have each agreed to
carry on their respective businesses only in the ordinary course, in accordance
with prudent practice and consistent with past practices. In addition, TCI and
the Trust have each agreed that, among other things and subject to certain
exceptions, neither it nor any of its subsidiaries may:

(1) incur any liabilities or obligations of any nature whatsoever (whether
absolute, accrued, contingent or otherwise and whether due or to become
due), except in limited circumstances;

(2) sell, transfer or otherwise dispose of any of their assets other than
in the ordinary course of business;

(3) grant any increase in the compensation payable to or to become payable
to any Trustees, Directors or officers (including, without limitation,
any increase or change pursuant to any bonus, pension, profit-sharing
or other plan or commitment);

(4) enter into any employment agreement, or enter into any consulting
agreement or other agreement that contains any provision for severance
or termination liabilities or obligations (including, without
limitation, change of control or "golden parachute" provisions);

(5) make aggregate capital expenditures or commitments in excess of
$100,000 for additions to property or for any other purpose;

(6) enter into any agreement or contract or commitment of the type outside
the ordinary course of business; or

(7) issue any additional shares of capital stock of or beneficial interests
or options, warrants, rights (including, without limitation, stock
appreciation rights and phantom stock rights) or other securities
exercisable for, convertible into or exchangeable for shares of capital
stock of or beneficial interests

- 70 -
<PAGE>

except for shares issued pursuant to a dividend reinvestment plan, or
pay any dividend (or make any other distribution) to its holders of
capital stock or beneficial interests except regular quarterly
dividends.

AMENDMENT AND WAIVER

The Merger Agreement may only be amended by an instrument in writing signed
on behalf of each party. Prior to the Merger, the Trust or TCI may waive any
obligation of the other party contained in the Merger Agreement.

EXPENSES

Whether or not the Merger is consummated, all fees and expenses incurred in
connection with the Merger Agreement and the transactions contemplated thereby
(including the Incorporation Procedure) will be paid by the party incurring
such fees or expenses (including, without limitation, legal fees, accounting
fees and investment advisor, broker and/or agent fees).

REPRESENTATIONS AND WARRANTIES

The Merger Agreement contains customary mutual representations and
warranties relating to, among other things, (i) corporate organization and
similar corporate matters; (ii) subsidiaries; (iii) the capital structures of
each of the Trust and TCI; (iv) authorization, execution, delivery,
performance and enforceability of, and required consents, approvals, orders
and authorizations of governmental authorities relating to, the Merger
Agreement and related matters; (v) absence of conflicts; (vi) accuracy of
financial and operating statements supplied to the other party; (vii) absence
of undisclosed or contingent liabilities that are not disclosed on the
financial and operating statements; (viii) material assets; (ix) the absence
of certain changes in 1998; (x) current material contracts and commitments;
(xi) status of accounts and notes receivable; (xii) status of pending and/or
threatened litigation; (xiii) insurance coverage; (xiv) compensation of
employees, officers and trustees/directors; (xv) permits applicable to their
respective businesses; (xvi) environmental and tax matters; (xvii) title to
assets; (xviii) absence of claims for redemption of capital stock; (xix)
brokers' commissions payable in connection with the Merger Agreement; and (xx)
fairness opinions received by both entities with respect to the Merger
consideration.

- 71 -
<PAGE>

MARKET PRICES OF THE SHARES; DIVIDENDS;
COMPARATIVE PER SHARE MARKET PRICE

The TCI common stock is listed on the NYSE and is traded under the ticker
symbol "TCI". The Trust shares are traded on the NASDAQ using the symbol
"CMETS". Following the Incorporation Procedure and the Merger, the TCI common
stock will continue to be listed on the NYSE and traded under the ticker symbol
"TCI".

The tables below set forth, for the calendar quarters indicated, the
reported high and low sale prices of the TCI common stock and the Trust shares
on the NYSE and NASDAQ, respectively, in each case based on published financial
sources, and the dividends declared on such stock.

<TABLE>
<CAPTION>
TCI COMMON TCI COMMON
TRUST SHARES TRUST SHARES STOCK STOCK
QUARTER HIGH LOW HIGH LOW
------- ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C>
First Quarter, 1996 $10 1/2 $9 5/8 $11 1/2 $9 5/8
Second Quarter, 1996 11 3/4 9 5/8 10 1/2 9 1/4
Third Quarter, 1996 11 1/2 10 10 1/2 9 3/4
Fourth Quarter, 1996 12 1/4 10 1/2 11 1/8 9 7/8
First Quarter, 1997 15 1/2 11 14 7/8 10 3/4
Second Quarter, 1997 16 1/4 11 15 5/8 10 3/4
Third Quarter, 1997 21 1/4 11 1/2 21 1/4 14 1/2
Fourth Quarter, 1997 21 1/2 15 1/2 21 3/8 13 3/8
First Quarter, 1998 18 15 1/2 18 1/4 14 1/4
Second Quarter, 1998 23 14 3/4 17 5/16 14 3/4
Third Quarter, 1998 17 1/2 15 16 1/4 12 1/2
Fourth Quarter, 1998 16 14 14 1/2 11 1/2
</TABLE>

The Trust paid dividends as follows:

<TABLE>
<CAPTION>
DATE DECLARED RECORD DATE PAYABLE DATE AMOUNT
------------- ----------- ------------ ------
<S> <C> <C> <C>
March 1, 1996 March 15, 1996 March 31, 1996 $ 0.13
June 3, 1996 June 14, 1996 June 28, 1996 $ 0.13
August 23, 1996 September 3, 1996 September 9, 1996 $ 0.13
August 23, 1996 September 3, 1996 September 9, 1996 $ 0.37*
December 2, 1996 December 13, 1996 December 31, 1996 $ 0.13
February 26, 1997 March 14, 1997 March 31, 1997 $ 0.13
June 5, 1997 June 13, 1997 June 30, 1997 $ 0.13
September 3, 1997 September 15, 1997 September 30, 1997 $ 0.13
December 1, 1997 December 15, 1997 December 31, 1997 $ 0.13
February 16, 1998 March 13, 1998 March 31, 1998 $ 0.15
May 27, 1998 June 4, 1998 June 19, 1998 $ 0.15
August 31, 1998 September 15, 1998 September 30, 1998 $ 0.15
November 24, 1998 December 15, 1998 December 30, 1998 $ 0.15
</TABLE>
- --------
* Special dividend.

- 72 -
<PAGE>

In November 1995 the TCI Board of Directors approved the resumption of the
payment of regular quarterly dividends. TCI has paid dividends as follows:

<TABLE>
<CAPTION>
DATE DECLARED RECORD DATE PAYABLE DATE AMOUNT
------------- ------------------ ------------------ ------
<S> <C> <C> <C>
March 1, 1996 March 15, 1996 March 31, 1996 $ 0.07
June 3, 1996 June 14, 1996 June 28, 1996 $ 0.07
August 23, 1996 September 13, 1996 September 30, 1996 $ 0.07
December 2, 1996 December 13, 1996 December 31, 1996 $ 0.07
February 26, 1997 March 14, 1997 March 31, 1997 $ 0.07
June 5, 1997 June 13, 1997 June 30, 1997 $ 0.07
September 3, 1997 September 15, 1997 September 30, 1997 $ 0.07
December 1, 1997 December 15, 1997 December 31, 1997 $ 0.07
December 24, 1997 January 2, 1998 January 8, 1998 $ 1.00*
February 16, 1998 March 13, 1998 March 31, 1998 $ 0.15
May 27, 1998 June 4, 1998 June 19, 1998 $ 0.15
August 31, 1998 September 15, 1998 September 30, 1998 $ 0.15
November 24, 1998 December 15, 1998 December 31, 1998 $ 0.15
</TABLE>
- --------
* Special dividend.

As of November 30, 1998 there were 5,075 Trust shareholders of record.

On December 5, 1989, the Board of Trustees approved a share repurchase
program pursuant to which the Trust is authorized to repurchase a total of
1,465,000 Trust shares. The Trust completed the authorized repurchase during
the first quarter of 1998. The Trust repurchased such shares at a total cost to
the Trust of $7.8 million.

In April 1998, the Trust's Board of Trustees authorized the Trust to
repurchase an additional 200,000 of the Trust shares. No Trust shares have been
repurchased under this authorization.

As of the date of this Joint Proxy Statement/Prospectus, the Board of
Trustees of the Trust has suspended all purchases under its share repurchase
program pending approval of the Merger.

On December 5, 1989, TCI's Board of Directors approved a share repurchase
program. The Board of Directors authorized TCI to repurchase a total of 687,000
shares of TCI common stock pursuant to such program. Through September 30,
1998, TCI had repurchased 409,765 shares of TCI common stock pursuant to such
program at a cost to TCI of $3.3 million. TCI repurchased 21,950 shares of TCI
common stock at a cost of $330,000 during the first nine months of 1998.

As of the date of this Joint Proxy Statement/Prospectus, the Board of
Directors of TCI has suspended all purchases under its share repurchase program
pending approval of the Merger.

On September 18, 1998, the closing price per Trust share on the NASDAQ was
$16.625 and the closing price per share of TCI common stock on the NYSE was
$13.0625. On September 21, 1998, the Trust and TCI publicly reported that the
Board of Trustees and the Board of Directors were evaluating whether to
recommend changes similar to the Incorporation Procedure and the Merger to
their respective shareholders. Stockholders of TCI and shareholders of the
Trust should obtain current market quotations for their respective shares.

- 73 -
<PAGE>

BUSINESS AND PROPERTIES OF TCI

TCI, a Nevada corporation, is the successor to a California business trust,
which was organized on September 6, 1983 and commenced operations on January
31, 1984. TCI has elected to be treated as a REIT under Sections 856 through
860 of the Code. TCI has, in the opinion of TCI's management, qualified for
federal taxation as a REIT for each year subsequent to December 31, 1983.

GENERAL

The Articles of Incorporation impose no limitations on TCI's ability to
invest in equity securities of, or acquire interests in, other persons engaged
in real estate activities. Although TCI has no present intention of purchasing
securities of other issuers for the purpose of exercising control, it reserves
the right to purchase securities of other issuers in the future. TCI does not
propose to engage in underwriting the securities of other issuers. Furthermore,
to continue to qualify for taxation as a REIT under the Code, TCI will, among
other things, be required to hold at least 75% of the value of its total assets
in real estate assets, government securities, cash and cash items at the close
of each quarter of each taxable year. See "Proposed Incorporation Procedure and
Merger -- Business Activities after Incorporation Procedure and Merger".

TCI has the authority to issue shares of TCI common stock (up to a total of
10,000,000) and preferred stock (in one or more series up to a total of
1,000,000) on terms which the TCI's Board of Directors believe to be in the
best interests of TCI. As of November 30, 1998, there were 3,875,944 shares of
issued and outstanding shares of TCI common stock and there were 5,829 shares
of issued and outstanding preferred stock. See "Proposed Incorporation
Procedure and Merger -- Comparison of the Securities of TCI and the Trust --
Preferred Stock".

Subject to available financing, TCI may borrow money for its day-to-day
operations and to acquire additional assets or refinance existing assets.
Market financing terms available at the time of any borrowings and the
objective of paying dividends on the TCI common stock will place a practical
limit on the nature and extent of those borrowings. Borrowing may come from
banks, other institutional lenders and private lenders, including BCM and other
REITs of which the Directors of TCI may serve as directors, officers or
trustees, subject to the limitations set forth in the "Proposed Incorporation
Procedure and Merger -- Business Activities after Incorporation Procedure and
Merger -- Restrictions on Related-Party Transactions". TCI may make loans to
other persons or entities. TCI may also take properties subject to, or assume,
existing debt and may mortgage, pledge or otherwise obtain financing for its
real properties. TCI may also establish lines of credit with banks or other
lenders. Although the Articles of Incorporation impose no limitation on the
aggregate amount of secured and unsecured indebtedness which TCI may incur, the
Board of Directors currently intends to continue its policy of not allowing
such aggregate amount to exceed 300% of TCI's net asset value (defined as all
assets of TCI minus all of its liabilities). However, the Directors of TCI may
alter such policy without a vote of the stockholders and may reconsider the
continuation of the policy following the Merger. No assurance can be given as
to the availability of credit for TCI, the amount or terms thereof or of the
restrictions that may be imposed upon TCI by lenders. For a discussion of the
Trust's access to credit, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources". TCI also has the authority to issue notes, debentures, convertible
notes and other debt securities. TCI has the authority to repurchase or
otherwise reacquire its shares of capital stock without the consent of its
stockholders, except as and unless restricted by Nevada law. Nevada law does
not presently restrict the repurchase of capital stock by a corporation. See
"Proposed Incorporation Procedure and Merger -- Comparison of the Securities of
TCI and the Trust" above. TCI provides its stockholders with annual and other
reports as required by the Exchange Act and Securities Act.

TCI's principal executive offices are located at 10670 North Central
Expressway, Suite 300, Dallas, Texas 75231. In the opinion of TCI's management,
TCI's offices are suitable and adequate for its present operations.

- 74 -
<PAGE>

BUSINESS PLAN AND INVESTMENT POLICIES

TCI's primary business and only industry segment is investing in equity
interests in real estate through direct acquisitions and partnerships and
financing real estate and real estate related activities through investments in
mortgage loans, including first, wraparound and junior mortgage loans. TCI's
real estate is located throughout the continental United States. Information
regarding the real estate and mortgage notes receivable portfolios of TCI is
set forth below and in Schedules III and IV included in the "Index to Financial
Statements" included in TCI's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998, which is incorporated by reference herein.

TCI's business is not seasonal. TCI has determined to continue to pursue a
balanced investment policy, seeking both current income and capital
appreciation. With respect to new real estate investments, TCI's plan of
operation is to consider all types of real estate, but in an attempt to bring
balance to its real estate portfolio, TCI will focus on apartments, primarily
located in the Southeast and Southwest regions of the United States. In making
any new real estate investments, emphasis will be on acquiring properties
generating current cash flow. TCI expects to continue to invest in and improve
these assets to maximize both their immediate and longer term value.

TCI expects to consider property sales opportunities for properties in
stabilized real estate markets where TCI's properties have reached their
potential. TCI may also be an opportunistic seller of properties in markets
that have become overheated, i.e. an abundance of buyers.

TCI's operating strategy with regard to its properties is to maximize each
property's operating income by aggressive property management through closely
monitoring expenses while at the same time making property renovations and/or
improvements where appropriate. While such expenditures increase the amount of
revenue required to cover operating expenses, TCI's management believes that
such expenditures are necessary to maintain or enhance the value of TCI's
properties.

TCI has determined that in 1998 it will seek to fund or acquire new mortgage
loans to take advantage of favorable interest rate spreads or profit
participation opportunities. TCI may also originate mortgage loans in
conjunction with providing purchase money financing of a property sale. TCI
intends to service and hold for investment the mortgage notes in its portfolio.
TCI may, however, borrow against its mortgage notes receivable using the
proceeds from such borrowings to fund additional mortgage loans or for general
working capital needs of TCI. TCI also intends to pursue its rights vigorously
with respect to mortgage notes that are in default. TCI's Articles of
Incorporation impose no limitations on TCI's investment policy with respect to
mortgage loans and do not prohibit TCI from investing more than a specified
percentage of its assets in any one mortgage loan.

TCI's Board of Directors currently intends to continue its policy of
prohibiting TCI from incurring aggregate secured and unsecured indebtedness in
excess of 300% of TCI's net asset value (defined as the book value of all
assets of TCI minus all of its liabilities); however, the Board of Directors
may alter such policy at any time and may reconsider the continuation of this
policy following the Merger.

TCI ASSETS

Details of TCI's real estate and mortgage notes receivable portfolios at
December 31, 1997, are set forth in Schedules III and IV, respectively, to the
Consolidated Financial Statements. The discussions set forth below under the
headings "Real Estate" and "Mortgage Loans" provide certain summary information
concerning the TCI's real estate and mortgage notes receivable portfolios.

TCI's real estate portfolio consists of properties held for investment,
properties held for sale, primarily obtained through foreclosure of the
collateral securing mortgage notes receivable and investment in partnerships.
The discussion set forth below under the heading "Real Estate" provides certain
summary

- 75 -
<PAGE>

information concerning TCI's real estate and further summary information with
respect to the TCI's properties held for investment, properties held for sale
and its investment in partnerships.

At December 31, 1997 and September 30, 1998, none of TCI's properties,
mortgage notes receivable or investment in partnerships exceeded 10% or more of
TCI's total assets. At September 30, 1998, 86% of TCI's assets consisted of
properties held for investment, 3% consisted of properties held for sale and 1%
consisted of investment in partnerships. The remaining 10% of TCI's assets at
September 30, 1998 were invested in cash, cash equivalents, mortgage notes and
interest receivable and other assets. The percentage of TCI's assets invested
in any one category is subject to change and no assurance can be given that the
composition of TCI's assets in the future will approximate the percentages
listed above.

TCI's real estate is geographically diverse. At September 30, 1998, TCI held
investments in apartments and commercial properties in each of the geographic
regions of the continental United States, although its apartments and
commercial properties are concentrated in the Southeast and Southwest regions,
as shown more specifically in the table under "Real Estate" below. At September
30, 1998, TCI held mortgage notes receivable secured by apartments in the
Southwest region and commercial properties in the Southeast region of the
continental United States, as shown more specifically in the table under
"Mortgage Loans" below.

To continue to qualify for federal taxation as a REIT under the Code, TCI is
required, among other things, to hold at least 75% of the value of its total
assets in real estate assets, government securities, cash and cash equivalents
at the close of each quarter of each taxable year.

GEOGRAPHIC LOCATION OF REAL ESTATE INVESTMENTS. TCI has divided the
continental United States into the following geographic regions.

Northeast region comprised of the states of Connecticut, Delaware,
Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania,
Rhode Island and Vermont and the District of Columbia. TCI has 3 apartment
complexes in this region.

Southeast region comprised of the states of Alabama, Florida, Georgia,
Mississippi, North Carolina, South Carolina, Tennessee and Virginia. TCI
has 4 apartment complexes and 12 commercial properties in this region.

Southwest region comprised of the states of Arizona, Arkansas, Louisiana,
New Mexico, Oklahoma and Texas. TCI has 25 apartment complexes and 9
commercial properties in this region.

Midwest region comprised of the states of Illinois, Indiana, Iowa, Kansas,
Kentucky, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio,
South Dakota, West Virginia and Wisconsin. TCI has 3 commercial properties
in this region.

Mountain region comprised of the states of Colorado, Idaho, Montana,
Nevada, Utah and Wyoming. TCI has 2 commercial properties in this region.

Pacific region comprised of the states of California, Oregon and
Washington. TCI has 4 apartment complexes, 5 commercial properties and 1
hotel in this region.

Excluded from the above are nine parcels of unimproved land, as described
below.

REAL ESTATE. At September 30, 1998, approximately 90% of TCI's assets were
invested in real estate. TCI invests in real estate located throughout the
continental United States, either on a leveraged or nonleveraged basis. TCI's
real estate portfolio consists of properties held for investment, investment in
partnerships and properties held for sale (which were primarily obtained
through foreclosure of the collateral securing mortgage notes receivable).

Types of Real Estate Investments. TCI's real estate consists of commercial
properties (a hotel, office buildings, industrial warehouses and shopping
centers) and apartments or similar properties having established

- 76 -
<PAGE>

income-producing capabilities. In selecting new real estate investments, the
location, age and type of property, gross rentals, lease terms, financial and
business standing of tenants, operating expenses, fixed charges, land values
and physical condition are among the factors considered. TCI may acquire
properties subject to or assume existing debt and may mortgage, pledge or
otherwise obtain financing for its properties. TCI's Board of Directors may
alter the types of and criteria for selecting new real estate investments and
for obtaining financing without a vote of stockholders.

TCI has typically invested in developed real estate, and has no current
intentions to do otherwise. TCI may, however, also invest in new construction
or development either directly or in partnership with nonaffiliated parties or
affiliates (subject to approval by TCI's Board of Directors). To the extent
that TCI invests in construction and development projects, TCI would be subject
to business risks, such as cost overruns and construction delays, associated
with such higher risk projects.

At September 30, 1998, TCI had no properties on which significant capital
improvements were in process.

In the opinion of TCI's management, the properties owned by TCI are
adequately covered by insurance.

The following table sets forth the percentages, by property type and
geographic region, of TCI's real estate (other than a hotel in the Pacific
region and 9 parcels of unimproved land, as described below) at September 30,
1998.

<TABLE>
<CAPTION>
COMMERCIAL
REGION APARTMENTS PROPERTIES
------ ---------- ----------
<S> <C> <C>
Pacific 5% 9%
Midwest - 12
Northeast 11 -
Southwest 69 26
Southeast 15 48
Mountain - 5
--- ---
100% 100%
</TABLE>

The foregoing table is based solely on the number of apartment units and
amount of commercial square footage owned by TCI and does not reflect the value
of TCI's investment in each region. TCI also owns 9 parcels of unimproved land,
2 parcels of 4.79 acres, and 4.66 acres in the Southeast region and 7 parcels
of .9250 an acre, 4.7 acres, 8.844 acres, 22.99 acres, 1.41 acres, 2.14 acres
and 27 acres in the Southwest region, all of which, other than the 4.79, 4.66,
1.41 and 2.14 acre parcels, are held for sale.

A summary of activity in TCI's owned real estate portfolio during 1997 and
through September 30, 1998 is as follows:

<TABLE>
<S> <C>
Owned properties in real estate portfolio at January 1, 1997 51
Properties purchased 32
Properties sold (8)
Land parcels retained at sale 2
Property foreclosed 1
Property released (1)
---
Owned properties in real estate portfolio at September 30, 1998 77
===
</TABLE>

Investment Properties. Set forth below are TCI's investment properties and
the monthly rental rate for apartments and the average annual rental rate for
commercial properties and occupancy thereof at December 31, 1997, 1996, 1995,
1994 and 1993:

- 77 -
<PAGE>

<TABLE>
<CAPTION>
RENT PER SQUARE FOOT OCCUPANCY %
- -------------------------------------------------------------------------------------------------
UNITS/
SQUARE
PROPERTY LOCATION FOOTAGE 1997 1996 1995 1994 1993 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Apartments
- -------------------------------------------------------------------------------------------------
Arbor Point Odessa, TX 195 Units/ $.41 $.37 $ * $ * $ * 85% 65% *% *% *%
178,920 sq.
ft.
- -------------------------------------------------------------------------------------------------
Carseka Los Angeles, 54 Units/ .97 .93 * * * 98 100 * * *
CA 37,068 sq.
ft.
- -------------------------------------------------------------------------------------------------
Country Bend Ft. Worth, 166 Units/ .54 * * * * 92 * * * *
TX 143,366 sq.
ft.
- -------------------------------------------------------------------------------------------------
Coventry Midland, TX 120 Units/ .39 .37 * * * 96 92 * * *
105,608 sq.
ft.
- -------------------------------------------------------------------------------------------------
Crescent Place Houston, TX 120 Units/ .57 * * * * 93 * * * *
95,464 sq.
ft.
- -------------------------------------------------------------------------------------------------
Fairpark Los Angeles, 49 Units/ .24 * * * * 91 * * * *
CA 43,331 sq.
ft.
- -------------------------------------------------------------------------------------------------
Fountain Tucson, AZ 410 Units/ .65 .65 .65 .64 .60 93 93 93 95 97
Village 363,079 sq.
ft.
- -------------------------------------------------------------------------------------------------
Gladstell Conroe, TX 168 Units/ .67 .65 .62 * * 92 92 94 * *
Forest 121,536 sq.
ft.
- -------------------------------------------------------------------------------------------------
Harper's Ferry Lafayette, 122 Units/ .51 .48 .47 .44 .41 97 96 94 97 95
LA 112,500 sq.
ft.
- -------------------------------------------------------------------------------------------------
Heritage Tulsa, OK 136 Units/ .64 .62 .60 .60 .56 95 95 94 93 96
92,464 sq.
ft.
- -------------------------------------------------------------------------------------------------
Mariners Point St. 368 Units/ .51 .51 .49 .52 .51 85 89 91 89 88
Petersburg, 310,494 sq.
FL ft.
- -------------------------------------------------------------------------------------------------
Sandstone Mesa, AZ 238 Units/ .30 * * * * 93 * * * *
146,320 sq.
ft.
- -------------------------------------------------------------------------------------------------
Shadow Run Pinellas 276 Units/ .74 .71 .70 .68 .67 97 96 98 99 97
Park, FL 216,400 sq.
ft.
- -------------------------------------------------------------------------------------------------
South Cochran Los Angeles, 64 Units/ .96 .93 .93 .93 .93 96 96 97 96 94
CA 43,100 sq.
ft.
- -------------------------------------------------------------------------------------------------
Southgate Odessa, TX 180 Units/ .43 .39 * * * 87 63 * * *
151,656 sq.
ft.
- -------------------------------------------------------------------------------------------------
Spa Cove Annapolis, 303 Units/ .77 .75 .75 .74 .74 94 93 95 96 97
MD 305,989 sq.
ft.
- -------------------------------------------------------------------------------------------------
Summerfield Orlando, FL 224 Units/ .63 .59 .56 .54 * 93 92 89 82 *
203,940 sq.
ft.
- -------------------------------------------------------------------------------------------------
Summerstone Houston, TX 242 Units/ .61 .59 .57 .57 .39 93 94 96 95 85
188,734 sq.
ft.
- -------------------------------------------------------------------------------------------------
Sunchase Odessa, TX 300 Units/ .43 * * * * 90 * * * *
223,048 sq.
ft.
- -------------------------------------------------------------------------------------------------
Terrace Hills El Paso, TX 310 Units/ .58 * * * * 95 * * * *
233,192 sq.
ft.
- -------------------------------------------------------------------------------------------------
Timbers Tyler, TX 180 Units/ .54 * * * * 92 * * * *
101,666 sq.
ft.
- -------------------------------------------------------------------------------------------------
Treehouse Irving, TX 160 Units/ .62 * * * * 99 * * * *
153,072 sq.
ft.
</TABLE>

- 78 -
<PAGE>

<TABLE>
<CAPTION>
RENT PER SQUARE FOOT OCCUPANCY %
- ---------------------------------------------------------------------------------------------
UNITS/
SQUARE
PROPERTY LOCATION FOOTAGE 1997 1996 1995 1994 1993 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Villas at Sterling, VA 102 Units/ $.94 $ * $ * $ * $ * 96% *% *% *% *%
Countryside 92,840 sq.
ft.
- ---------------------------------------------------------------------------------------------
Villa Piedra Los Angeles, 132 Units/ .30 * * * * 89 * * * *
CA 81,700 sq.
ft.
- ---------------------------------------------------------------------------------------------
Westgage of Laurel, MD 218 Units/ .82 .81 .80 .79 .79 96 96 94 94 93
Laurel 201,704 sq.
ft.
- ---------------------------------------------------------------------------------------------
Westwood Odessa, TX 79 Units/ .45 .40 * * 87 65 * * *
49,001 sq.
ft.
- ---------------------------------------------------------------------------------------------
Woodland San Antonio, 96 Units/ .66 .66 .64 .59 .54 86 90 94. 97 91
Hills TX 57,800 sq.
ft.
- ---------------------------------------------------------------------------------------------
Woods Edge Rockville, 162 Units/ .95 .93 .93 .91 .91 94 93 94 94 91
MD 146,460 sq.
ft.
</TABLE>

- 79 -
<PAGE>

<TABLE>
<CAPTION>
RENT PER SQUARE FOOT OCCUPANCY %
- ------------------------------------------------------------------------------------------------------------
SQUARE
PROPERTY LOCATION FOOTAGE 1997 1996 1995 1994 1993 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Office
Buildings
- ------------------------------------------------------------------------------------------------------------
74 New San 114,952 $16.18 $14.88 $14.67 $14.59 $15.09 97% 92% 89% 53% 27%
Montgomery Francisco, sq. ft.
CA
- ------------------------------------------------------------------------------------------------------------
Bonita Plaza Bonita, CA 47,777 20.81 * * * * 61 * * * *
sq. ft.
- ------------------------------------------------------------------------------------------------------------
Chesapeake San Diego, 100,484 13.86 13.28 9.76 12.84 12.48 100 100 100 100 68
Ridge CA sq. ft.
- ------------------------------------------------------------------------------------------------------------
Corporate Chantilly, 65,918 13.69 13.41 13.07 12.74 * 100 100 100 81 *
Pointe VA sq. ft.
- ------------------------------------------------------------------------------------------------------------
Forum Richmond, VA 80,941 14.64 14.02 13.38 11.46 12.73 96 100 98 86 75
sq. ft.
- ------------------------------------------------------------------------------------------------------------
Hartford Dallas, TX 174,727 8.86 9.44 9.55 9.64 * 46 46 50 56 *
sq. ft.
- ------------------------------------------------------------------------------------------------------------
Institute Place Chicago, IL 142,215 12.95 12.31 13.14 12.49 12.25 86 75 73 70 70
Lofts sq. ft.
- ------------------------------------------------------------------------------------------------------------
Lexington Colorado 74,603 9.57 * * * * 60 * * * *
Center Springs, CO sq. ft.
- ------------------------------------------------------------------------------------------------------------
One Sterling, VA 103,376 15.24 14.75 14.32 13.91 13.50 100 100 100 100 100
Steeplechase sq. ft.
- ------------------------------------------------------------------------------------------------------------
Plaza Towers St. 188,218 12.77 12.15 11.84 11.85 11.70 96 88 82 75 58
Petersburg, sq. ft.
FL
- ------------------------------------------------------------------------------------------------------------
Savings of Houston, TX 68,634 11.16 * * * * 90 * * * *
America sq. ft.
- ------------------------------------------------------------------------------------------------------------
Town and Houston, TX 64,089 4.80 4.47 4.18 3.69 3.78 76 67 62 76 76
Country sq. ft.
- ------------------------------------------------------------------------------------------------------------
Venture Center Atlanta, GA 38,271 13.07 12.67 12.10 11.65 11.29 100 94 89 100 86
sq. ft.
- ------------------------------------------------------------------------------------------------------------
Waterstreet Boulder, CO 106,211 16.73 15.60 14.70 14.30 14.26 99 96 99 98 90
sq. ft.
- ------------------------------------------------------------------------------------------------------------
Industrial
Warehouses
- ------------------------------------------------------------------------------------------------------------
Corporate Ashburn, VA 178,492 5.93 5.64 5.19 5.96 * 98 80 51 71 *
Center at sq. ft.
Beaumeade
- ------------------------------------------------------------------------------------------------------------
Denton Drive Dallas, TX 123,800 2.01 1.34 1.34 1.34 1.34 75 100 100 100 100
sq. ft.
- ------------------------------------------------------------------------------------------------------------
Encon Fort Worth, 279,290 1.66 * * * * 100 * * * *
Warehouse TX sq. ft.
- ------------------------------------------------------------------------------------------------------------
Parke Long Chantilly, 222,197 6.15 5.32 5.61 5.55 * 87 80 71 71 *
VA sq. ft.
</TABLE>
- ---
* Property was purchased in either 1994, 1995, 1996 or 1997.

- 80 -
<PAGE>

<TABLE>
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RENT PER SQUARE FOOT OCCUPANCY %
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
SQUARE
PROPERTY LOCATION FOOTAGE 1997 1996 1995 1994 1993 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Technology Sterling, 199,582 $ 5.10 $ 5.26 $ 4.83 $ 4.69 $ 3.29 70% 78% 77% 74% 74%
Trading VA sq. ft.
Center
- ----------------------------------------------------------------------------------------------------------
Texstar Arlington, 97,846 2.11 1.86 1.86 1.86 1.86 100 100 100 100 100
TX sq. ft.
- ----------------------------------------------------------------------------------------------------------
Tricon Atlanta, 570,808 3.44 3.29 3.05 3.17 2.84 91 93 98 92 87
Warehouses GA sq. ft.
- ----------------------------------------------------------------------------------------------------------
Shopping
Centers
- ----------------------------------------------------------------------------------------------------------
Dunes Michigan 223,938 4.58 4.49 4.40 4.31 4.05 77 82 85 77 87
Plaza City, IN sq. ft.
- ----------------------------------------------------------------------------------------------------------
Northtown Dallas, 354,174 2.92 3.13 3.85 3.07 3.05 78 82 81 83 85
Mall TX sq. ft.
- ----------------------------------------------------------------------------------------------------------
Parkway Dallas, 28,228 13.00 12.01 11.24 11.09 10.91 100 94 94 95 84
Center TX sq. ft.
- ----------------------------------------------------------------------------------------------------------
Sadler Amelia 73,396 6.76 6.54 6.14 5.90 5.89 96 95 92 96 96
Square Island, sq. ft.
FL
- ----------------------------------------------------------------------------------------------------------
Sheboygan Sheboygan, 74,532 1.99 1.99 1.99 1.99 1.99 100 100 100 100 100
WI sq. ft.
- ----------------------------------------------------------------------------------------------------------
Hotel Rooms
- ----------------------------------------------------------------------------------------------------------
Majestic San 60 rooms 136.08 117.45 106.79 107.15 107.00 73 70 56 58 64
Inn Francisco,
CA
- ----------------------------------------------------------------------------------------------------------
Land Acres
- ----------------------------------------------------------------------------------------------------------
Las Las 4.79
Colinas Colinas, Acres
TX
- ----------------------------------------------------------------------------------------------------------
West End Dallas, 8.844
TX Acres

</TABLE>

- 81 -
<PAGE>

Occupancy presented here is without reference to whether leases in effect
are at, below or above market rates.

In 1994, TCI borrowed a total of $3.3 million from a Northtown Mall tenant,
secured by the 354,174 sq. ft. shopping center in Dallas, Texas. The mortgage
matured December 31, 1995. In August 1996, TCI modified and extended the
matured loan by making $450,000 in principal paydowns to extend the loan to
March 31, 1997. TCI did not payoff the loan at maturity. In October 1997, TCI
made a $200,000 principal paydown to extend the loan to December 31, 1997. In
December 1997, TCI made an additional $100,000 principal paydown to extend the
loan to March 31, 1998. The loan had a principal balance of $2.5 million at
June 30, 1998.

In 1997, Montgomery Ward ("Ward"), a tenant at the Northtown Mall, filed for
bankruptcy protection. In an attempt to keep the Ward lease from being sold,
Northtown Mall was placed in administrative bankruptcy. The Ward lease,
however, was sold for the benefit of the Ward bankruptcy estate. In September
1998, TCI bought back the lease concurrent with the $15.6 million sale of
Northtown Mall. TCI received net cash of $12.2 million after paying off $2.5
million of existing mortgage debt, $900,000 for the Ward lease and the payment
of various closing costs. In conjunction with the sale, the Northtown Mall
bankruptcy proceeding was dismissed. TCI paid a real estate brokerage
commission of $135,000 to Carmel Realty. A gain of $3.3 million was recognized.

In January 1997, TCI refinanced the matured mortgage debt secured by 74 New
Montgomery, a 114,952 sq. ft. office building in San Francisco, California, in
the amount of $6.3 million. TCI received net cash of $1.0 million after paying
off $5.2 million in existing mortgage debt, funding escrows and the payment of
various closing costs. The new mortgage bears interest at a variable rate,
currently 9.25% per annum, requires monthly payments of principal and interest
of $53,996 and matures in January 2004. TCI paid a mortgage brokerage and
equity refinancing fee of $63,000 to BCM.

Also in January 1997, TCI refinanced the matured mortgage debt secured by
the 162 unit Woods Edge Apartments in Rockville, Maryland in the amount of $6.2
million. TCI received no net cash. The refinancing proceeds were used to payoff
$5.9 million in existing mortgage debt, the funding of escrows and the payment
of various closing costs. The new mortgage bears interest at 8.125% per annum,
requires monthly payments of principal and interest of $46,035 and matures in
February 2007. TCI paid a mortgage brokerage and equity refinancing fee of
$62,000 to BCM.

In February 1997, TCI refinanced the matured mortgage debt secured by the
303 unit Spa Cove Apartments in Annapolis, Maryland in the amount of $12.2
million. TCI received net cash of $245,000 after paying off $11.6 million in
existing mortgage debt, the funding of escrows and the payment of various
closing costs. The new mortgage bears interest at 8.015% per annum, requires
monthly payments of principal and interest of $89,529 and matures in March
2007. TCI paid a mortgage brokerage and equity refinancing fee of $122,000 to
BCM.

In March 1997, TCI purchased the Terrace Hills Apartments, a 310 unit
apartment complex in El Paso, Texas, for $6.2 million. TCI paid $1.4 million in
cash and obtained new mortgage financing of $4.8 million. The mortgage bears
interest at 8.07% per annum, requires monthly payments of principal and
interest of $35,086 and matures in April 2007. TCI paid a real estate brokerage
commission of $193,000 to Carmel Realty and a real estate acquisition fee of
$62,000 to BCM.

Also in March 1997, TCI purchased the Crescent Place Apartments, a 120 unit
apartment complex in Houston, Texas, for $2.3 million. TCI paid $500,000 in
cash and obtained new mortgage financing of $1.8 million. The mortgage bears
interest at 8.5% per annum, requires monthly payments of principal and interest
of $13,552 and matures in April 2004. TCI paid a real estate brokerage
commission of $91,000 to Carmel Realty and a real estate acquisition fee of
$24,000 to BCM.

- 82 -
<PAGE>

Further in March 1997, TCI purchased the Savings of America Building, a
68,634 sq. ft. office building in Houston, Texas, for $1.6 million in cash. TCI
paid a real estate brokerage commission of $64,000 to Carmel Realty and a real
estate acquisition fee of $16,000 to BCM. In August 1997, TCI obtained mortgage
financing in the amount of $1.3 million secured by the unencumbered Savings of
America Building. TCI received net cash of $1.2 million after funding a
required tax escrow and the payment of various closing costs. The mortgage
bears interest at 8.49% per annum, requires monthly payments of principal and
interest of $10,371 and matures in September 2007. TCI paid a mortgage
brokerage and equity refinancing fee of $13,000 to BCM.

In March 1997, TCI refinanced the mortgage debt scheduled to mature in
December 1997, secured by the 46,509 sq. ft. President's Square Shopping Center
in San Antonio, Texas, in the amount of $1.9 million. TCI received net cash of
$600,000 after paying off $1.2 million in existing mortgage debt and the
payment of various closing costs. The new mortgage bears interest at 9.44% per
annum, requires monthly payments of principal and interest of $16,521 and
matures in March 2009. TCI paid a mortgage brokerage and equity refinancing fee
of $19,000 to BCM. In November 1997, TCI sold the shopping center for $2.6
million in cash. TCI received net cash of $470,000 after paying off $1.9
million in existing mortgage debt and the payment of various closing costs. TCI
paid a real estate brokerage commission of $85,000 to Carmel Realty. A gain of
$554,000 was recognized.

In May 1997, TCI purchased the Treehouse Apartments, a 160 unit apartment
complex in Irving, Texas, for $3.4 million in cash. TCI paid a real estate
brokerage commission of $122,000 to Carmel Realty and a real estate acquisition
fee of $34,000 to BCM. In June 1997, TCI obtained mortgage financing in the
amount of $2.8 million secured by the unencumbered Treehouse Apartments. TCI
received net cash of $2.3 million after funding required escrows and the
payment of various closing costs. The mortgage bears interest at 8.28% per
annum, requires monthly payments of principal and interest of $21,994 and
matures in July 2007. TCI paid a mortgage brokerage and equity refinancing fee
of $28,000 to BCM.

Also in May 1997, TCI purchased the Villas at Countryside Apartments, a 102
unit apartment complex in Sterling, Virginia, for $6.3 million. TCI paid $1.1
million in cash and assumed the existing mortgage of $5.2 million. The mortgage
bore interest at a variable rate and was scheduled to mature in December 1997.
In December 1997, the mortgage was modified and the maturity date was extended
to June 30, 1998. TCI paid a real estate brokerage commission of $183,000 to
Carmel Realty and a real estate acquisition fee of $63,000 to BCM. In July
1998, TCI refinanced the matured mortgage debt in the amount of $5.4 million.
TCI received net cash of $400,000 after paying off $5.0 million in existing
mortgage debt, funding of escrows and the payment of various closing costs. The
new mortgage bears interest at 6.85% per annum, requires monthly payments of
principal and interest of $35,692 and matures in August 2005. TCI paid a
mortgage brokerage and equity refinancing fee of $54,000 to BCM.

In August 1997, TCI purchased a 8.844 acre parcel of undeveloped land in
downtown Dallas, Texas, for $11.0 million. TCI paid $2.2 million in cash with
the seller providing purchase money financing of the remaining $8.8 million of
the purchase price. The financing bears interest at 8.5% per annum, requires
monthly payments of principal and interest of $67,664 and matures in September
2002. TCI paid a real estate brokerage commission of $285,000 to Carmel Realty
and a real estate acquisition fee of $110,000 to BCM.

In September 1997, TCI purchased Bonita Plaza, a 47,777 sq. ft. office
building in Bonita, California, for $5.7 million. TCI paid $1.7 million in cash
and obtained new mortgage financing of $4.0 million. The mortgage bore interest
at a variable rate, required monthly payments of interest only and matured in
September 1998. TCI paid a real estate brokerage commission of $183,000 to
Carmel Realty and a real estate acquisition fee of $57,000 to BCM. In November
1998, TCI refinanced the matured mortgage debt in the amount of $5.2 million.
TCI received net cash of $1.2 million after paying off $4.0 million in existing
mortgage debt, funding of escrows and the payment of various closing costs. The
new mortgage bears interest at a variable rate, currently, 7.4% per annum,
requires monthly payments of principal and interest of $37,722 and matures in
November 2001. TCI paid a mortgage brokerage and equity refinancing fee of
$52,000 to BCM.

- 83 -
<PAGE>

Also in September 1997, TCI purchased the Country Bend Apartments, a 166
unit apartment complex in Fort Worth, Texas, for $3.4 million. TCI paid
$743,000 in cash and assumed the existing mortgage of $2.6 million. The
mortgage bears interest at 8.82% per annum, requires monthly payments of
principal and interest of $21,913 and matures in May 2005. TCI paid a real
estate brokerage commission of $121,000 to Carmel Realty and a real estate
acquisition fee of $34,000 to BCM.

Further in September 1997, TCI obtained mortgage financing in the amount of
$1.5 million secured by the unencumbered 54 unit Carseka Apartments in Los
Angeles, California. TCI received net cash of $1.5 million after funding of
escrows and the payment of various closing costs. The mortgage bears interest
at 7.6% per annum, requires monthly payments of principal and interest of
$10,768 and matures in October 2007. TCI paid a mortgage brokerage and equity
refinancing fee of $15,000 to BCM.

In October 1997, TCI purchased the Sandstone Apartments, a 238 unit
apartment complex in Mesa, Arizona, for $7.9 million. TCI paid $2.0 million in
cash and assumed the existing mortgage of $5.9 million. The mortgage bears
interest at a variable rate, currently 8.25% per annum, requires monthly
payments of principal and interest of $45,087 for the first sixty months and
thereafter requires monthly payments of principal and interest of $49,962 and
matures in August 2004. TCI paid a real estate brokerage commission of $228,000
to Carmel Realty and an acquisition fee of $79,000 to BCM.

Also in October 1997, TCI purchased the Encon Warehouse, a 279,290 sq. ft.
industrial warehouse facility in Fort Worth, Texas, for $4.7 million. TCI paid
$1.2 million in cash and obtained new mortgage financing of $3.5 million. The
mortgage bears interest at 8.5% per annum, requires monthly payments of
interest only for the first thirty-six months and thereafter requires monthly
payments of principal and interest of $26,912 and matures in October 2007. TCI
paid a real estate brokerage commission of $161,000 to Carmel Realty and a real
estate acquisition fee of $47,000 to BCM.

Further in October 1997, TCI purchased the Sunchase Apartments, a 300 unit
apartment complex in Odessa, Texas, for $3.6 million. TCI paid $1.5 million in
cash and assumed the existing mortgage of $2.1 million. The mortgage bears
interest at 9.0% per annum, requires monthly payments of principal and interest
of $17,621 and matures in June 2001. TCI paid a real estate brokerage
commission of $127,000 to Carmel Realty and an acquisition fee of $36,000 to
BCM.

In October 1997, TCI refinanced the mortgage debt secured by the 64 unit
South Cochran Apartments in Los Angeles, California in the amount of $2.0
million. TCI received net cash of $921,000 after paying off $902,000 in
existing mortgage debt, funding escrows and the payment of various closing
costs associated with the financing. The new mortgage bears interest at 7.62%
per annum, requires monthly payments of principal and interest of $13,795 and
matures in November 2007. TCI paid a mortgage brokerage and equity refinancing
fee of $20,000 to BCM.

In December 1997, TCI purchased the Fairpark Apartments, a 49 unit apartment
complex in Los Angeles, California, for $2.0 million. TCI paid $500,000 in cash
and obtained new mortgage financing of $1.5 million. The mortgage bears
interest at 8.45% per annum, requires monthly payments of principal and
interest of $11,628 and matures in January 2003. TCI paid a real estate
brokerage commission of $81,000 to Carmel Realty and a real estate acquisition
fee of $20,000 to BCM.

Also in December 1997, TCI purchased the Villa Piedra Apartments, a 132 unit
apartment complex in Los Angeles, California, for $4.7 million. TCI paid $1.2
million in cash and obtained new mortgage financing of $3.5 million. The
mortgage bears interest at 8.45% per annum, requires monthly payments of
principal and interest of $26,833 and matures in January 2003. TCI paid a real
estate brokerage commission of $160,000 to Carmel Realty and a real estate
acquisition fee of $47,000 to BCM.

Further in December 1997, TCI purchased the Timbers Apartments, a 180 unit
apartment complex in Tyler, Texas, for $2.3 million. TCI paid $500,000 in cash
and obtained new mortgage financing of $1.8

- 84 -
<PAGE>

million. The mortgage bears interest at a variable rate, currently 9.2% per
annum, requires monthly payments of principal and interest of $16,763 and
matures in December 2017. TCI paid a real estate brokerage commission of
$90,000 to Carmel Realty and a real estate acquisition fee of $23,000 to BCM.

In December 1997, TCI purchased the Lexington Center, a 74,603 sq. ft.
office building in Colorado Springs, Colorado, for $5.3 million. TCI paid $1.3
million in cash with the seller providing purchase money financing of the
remaining $4.0 million of the purchase price. The financing bears interest at
9% per annum, requires monthly payments of principal and interest of $30,000
and matures in December 1998. TCI paid a real estate brokerage commission of
$176,000 to Carmel Realty and a real estate acquisition fee of $53,000 to BCM.

Also in December 1997, TCI refinanced the matured mortgage debt secured by
the 60 room Majestic Inn in San Francisco, California in the amount of $5.7
million. TCI received net cash of $4.5 million after paying off $950,000 in
existing mortgage debt, the funding of escrows and the payment of various
closing costs. The new mortgage bears interest at 8.31% per annum, requires
monthly payments of principal and interest of $46,376 and matures in January
2005. TCI paid a mortgage brokerage equity and refinancing fee of $57,000 to
BCM.

Further in December 1997, TCI refinanced the mortgage debt secured by
Corporate Center at Beaumeade, a 178,492 sq. ft. industrial warehouse facility
in Ashburn, Virginia in the amount of $7.0 million. TCI received net cash of
$2.1 million after paying off $4.6 million in existing mortgage debt, the
funding of escrows and the payment of various closing costs. The new mortgage
bears interest at 7.4% per annum, requires monthly payments of principal and
interest of $51,275 and matures in January 2008. TCI paid a mortgage brokerage
equity and refinancing fee of $70,000 to BCM.

In December 1997, TCI refinanced the mortgage debt secured by 65,918 sq. ft.
Corporate Point Office Building in Chantilly, Virginia in the amount of $4.0
million. TCI received net cash of $944,000 after paying off $2.8 million in
existing mortgage debt, the funding of escrows and the payment of various
closing costs associated with the financing. The new mortgage bears interest at
7.75% per annum, requires monthly payments of principal and interest of $30,364
and matures in January 2008. TCI paid a mortgage brokerage and equity
refinancing fee of $40,000 to BCM.

In January 1998, TCI purchased the Mountain Plaza Apartments, a 188 unit
apartment complex in El Paso, Texas, for $4.0 million. TCI paid $1.0 million in
cash and obtained new mortgage financing of $3.0 million. The mortgage bears
interest at 8.2% per annum, requires monthly payments of interest only and
matures in January 2000. TCI paid a real estate brokerage commission of
$139,000 to Carmel Realty and a real estate acquisition fee of $39,000 to BCM.

Also in January 1998, TCI purchased the Hunters Glen Apartments, a 212 unit
apartment complex in Midland, Texas, for $2.5 million. TCI paid $600,000 in
cash and obtained seller financing of the remaining $1.9 million of the
purchase price. The financing bears interest at a variable rate, currently 8.0%
per annum, requires monthly payments of interest only for the first twenty-four
months and thereafter requires monthly payments of principal and interest of
$14,302 and matures in January 2003. TCI paid a real estate brokerage
commission of $94,000 to Carmel Realty and a real estate acquisition fee of
$25,000 to BCM.

Further in January 1998, TCI purchased the Laws Street land, a 1.41 acre
parcel of land in Dallas, Texas, for $1.9 million in cash. TCI paid a real
estate brokerage commission of $39,000 to Carmel Realty and a real estate
acquisition fee of $19,000 to BCM.

In January 1998, TCI purchased the Bent Tree Apartments, a 204 unit
apartment complex in Addison, Texas, for $8.1 million. TCI paid $1.7 million in
cash and obtained new mortgage financing of $6.4 million. The mortgage bears
interest at 7.2% per annum, requires monthly payments of principal and interest
of $46,054

- 85 -
<PAGE>

and matures in February 2008. TCI paid a real estate brokerage commission of
$232,000 to Carmel Realty and a real estate acquisition fee of $81,000 to BCM.

In February 1998, TCI purchased Parkway North, a 71,041 square foot office
building in Dallas, Texas, for $5.4 million. TCI paid $1.5 million in cash and
obtained new mortgage financing of $3.9 million. The mortgage bears interest at
a variable rate, currently 8.75% per annum, requires monthly payments of
interest only and matures in March 2000. TCI paid a real estate brokerage
commission of $179,000 to Carmel Realty and a real estate acquisition fee of
$54,000 to BCM.

Also in February 1998, TCI purchased the Lemmon Carlisle land, a 2.14 acre
parcel of land in Dallas, Texas, for $3.4 million in cash. TCI paid a real
estate brokerage commission of $54,000 to Carmel Realty and a real estate
acquisition fee of $34,000 to BCM. In May 1998, TCI obtained mortgage financing
of $2.2 million secured by the unencumbered Lemmon Carlisle land. TCI received
net cash of $2.1 million after the payment of various closing costs. The
mortgage bears interest at 9.25% per annum, requires monthly payments of
interest only and matures in May 2000. TCI paid a mortgage brokerage and equity
refinancing fee of $22,000 to BCM.

In March 1998, TCI purchased the Plaza on Bachman Creek, a 80,278 sq. ft.
retail/office complex in Dallas, Texas, for $3.5 million. TCI paid $1.1 million
in cash and obtained new mortgage financing of $2.4 million. The mortgage bears
interest at a variable rate, currently 9% per annum, requires monthly payments
of principal and interest of $21,593 and matures in March 2018. TCI paid a real
estate brokerage commission of $124,000 to Carmel Realty and a real estate
acquisition fee of $35,000 to BCM.

Also in March 1998, TCI refinanced the mortgage debt secured by the 570,808
sq. ft. Tricon Warehouses in Atlanta, Georgia in the amount of $10.2 million.
TCI received net cash of $5.4 million after paying off $4.8 million in existing
mortgage debt, the funding of escrows and the payment of various closing costs.
The new mortgage bears interest at a variable rate, currently 7.53% per annum,
requires monthly payments of principal and interest of $75,576 and matures in
April 2008. TCI paid a brokerage and equity refinancing fee of $102,000 to BCM.

In April 1998, TCI purchased in a single transaction, Ashton Way, a 178 unit
apartment complex in Midland, Texas, and the 4400 Apartments, a 92 unit
apartment complex also in Midland, Texas, and in May 1998, TCI purchased
Woodview, a 232 unit apartment complex in Odessa, Texas, for a total of $6.8
million. TCI paid a total of $1.5 million in cash and obtained new mortgage
financing totaling $5.3 million. The first mortgage of $4.5 million bears
interest at 7.2% per annum and the second mortgage of $845,000 bears interest
at a variable rate, currently 8.2% per annum. The mortgages require monthly
payments of principal and interest totaling $38,003 and mature in October 1999
and May 2008, respectively. TCI paid a real estate brokerage commission of
$244,000 to Carmel Realty and a real estate acquisition fee of $68,000 to BCM.

In May 1998, TCI purchased the Eagle Crest land, a 22.99 acre parcel of land
in Farmers Branch, Texas, for $2.5 million in cash. TCI paid a real estate
brokerage commission of $95,000 to Carmel Realty and a real estate acquisition
fee of $25,000 to BCM.

Also in May 1998, TCI purchased Emerald Terrace, a 172 unit apartment
complex in Midland, Texas, for $1.5 million. TCI paid $425,000 in cash, assumed
the existing mortgage of $584,000 and obtained seller financing of the
remaining $491,000 of the purchase price. The mortgages bear interest at a
variable and a fixed rate, currently 9.5% and 7.5% per annum, respectively,
require monthly payments of principal and interest totaling $10,643 and mature
in November 1999 and June 2008. TCI paid a real estate brokerage commission of
$59,000 to Carmel Realty and a real estate acquisition fee of $15,000 to BCM.

Further in May 1998, TCI purchased, in a single transaction, the Daley
Plaza, a 62,425 sq. ft. office building in San Diego, California and the View
Ridge Building, a 25,062 sq. ft. office building, also in San Diego,
California, for a total of $6.5 million. TCI paid $1.7 million in cash and
obtained new mortgage

- 86 -
<PAGE>

financing totaling $4.8 million. The mortgages bear interest at a variable
rate, currently 9.5% per annum, require monthly payments of principal and
interest totaling $42,416 and mature in May 2005. TCI paid a real estate
brokerage commission of $200,000 to Carmel Realty and a real estate acquisition
fee of $65,000 to BCM.

In May 1998, TCI refinanced the mortgage debt secured by the 188,218 sq. ft.
Plaza Towers Office Building in St. Petersburg, Florida, in the amount of $7.4
million. TCI received net cash of $2.6 million after paying off $4.8 million in
existing mortgage debt, the funding of escrows and the payment of various
closing costs. The new mortgage bears interest at a variable rate, currently
7.57% per annum, requires monthly payments of principal and interest of $55,023
and matures in June 2008. TCI paid a mortgage brokerage and equity refinancing
fee of $74,000 to BCM.

In June 1998, TCI purchased the Atrium, a 74,603 sq. ft. office building in
Palm Beach, Florida, for $5.4 million. TCI paid $1.3 million in cash and
obtained new mortgage financing of $4.1 million. The mortgage bears interest at
a variable rate, currently 7.93% per annum, requires monthly payments of
principal and interest of $31,455 and matures in July 2001. TCI paid a real
estate brokerage commission of $179,000 to Carmel Realty and a real estate
acquisition fee of $54,000 to BCM.

In July 1998, TCI purchased the Valley Rim building, a 54,194 sq. ft. office
building in San Diego, California, for $5.1 million. TCI paid $1.4 million in
cash and obtained new mortgage financing of $3.7 million. The mortgage bears
interest at a variable rate, currently 9.5% per annum, requires monthly
payments of principal and interest of $32,576 and matures in June 2005. TCI
paid a real estate brokerage commission of $172,000 to Carmel Realty and an
acquisition fee of $51,000 to BCM.

Also in July 1998, TCI purchased the Limestone Canyon land, a 27 acre parcel
of land in Austin, Texas, for $1.8 million in cash. In conjunction with the
purchase, TCI obtained a mortgage financing commitment of $13.0 million for the
construction of a 260 unit apartment complex on the site. The mortgage bears
interest at a variable rate, currently 7.75% per annum, requires monthly
payments of interest only and matures in July 2000. TCI paid a real estate
brokerage commission of $70,000 to Carmel Realty and an acquisition fee of
$18,000 to BCM.

In August 1998, TCI obtained second lien financing of $1.8 million secured
by the 310 unit Terrace Hills Apartments in El Paso, Texas. TCI received net
cash of $1.7 million after the payment of various closing costs. The mortgage
bears interest at 7.275% per annum, requires monthly payments of principal and
interest of $11,968 and matures in September 2009. TCI paid a mortgage
brokerage and equity refinancing fee of $18,000 to BCM.

In September 1998, TCI sold Chesapeake Ridge, a 100,484 sq. ft. office
building in San Diego, California, sold for $13.2 million in cash. TCI received
net cash of $7.9 million after paying off $5.3 million of existing mortgage
debt and the payment of various closing costs. TCI paid a real estate brokerage
commission of $317,000 to Carmel Realty. A gain of $5.9 million was recognized.

In October 1998, TCI purchased the Cliffs of Eldorado, a 208 unit apartment
complex in McKinney, Texas, for $12.8 million. TCI paid $1.6 million in cash,
assumed the existing mortgage of $10.6 million and, in December 1998, issued
5,829 shares of Series A Cumulative Convertible Preferred Stock with a total
liquidation value of $583,000. The assumed mortgage bears interest at 8.125%
per annum, requires monthly payments of principal and interest of $75,197 and
matures in November 2037. TCI paid a real estate brokerage commission of
$312,000 to Carmel Realty and a real estate acquisition fee of $128,000 to BCM.

Also in October 1998, TCI sold the Denton Drive Warehouse, a 123,800 sq. ft.
industrial warehouse in Dallas, Texas, for $1.2 million in cash. TCI received
net cash of $891,000 after paying off $309,000 in existing mortgage debt and
the payment of various closing costs. TCI paid a real estate brokerage
commission of $46,000 to Carmel Realty. A gain of approximately $200,000 will
be recognized.

- 87 -
<PAGE>

Properties Held for Sale. Set forth below are TCI's properties held for
sale, primarily obtained through foreclosure, and the average rental rate for a
commercial property and occupancy thereof at December 31, 1997, 1996, 1995,
1994 and 1993.

<TABLE>
<CAPTION>
RENT PER SQUARE FOOT OCCUPANCY %
- -----------------------------------------------------------------------------------------------------
PROPERTY LOCATION 1997 1996 1995 1994 1993 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shopping Square
Center Footage
- -----------------------------------------------------------------------------------------------------
Shaws Plaza Sharon, MA 103,482 sq. $5.47 $5.67 $5.79 $5.80 $5.69 87% 87% 87% 85% 88%
ft.
- -----------------------------------------------------------------------------------------------------
Land Acres
- -----------------------------------------------------------------------------------------------------
Moss Creek Greensboro, 80 Acres
NC
- -----------------------------------------------------------------------------------------------------
Moss Creek Greensboro, 4.79 Acres
NC
- -----------------------------------------------------------------------------------------------------
Fruitland Fruitland 4.66 Acres
Park, FL
- -----------------------------------------------------------------------------------------------------
Republic land Dallas, TX .9250 Acres
</TABLE>

In February 1997, TCI completed the sale of the Fiesta Mart, a 29,000 sq.
ft. shopping center in San Angelo, Texas, which was under contract for sale at
December 31, 1996, for $544,000 in cash. TCI received net cash of $403,000
after paying off $90,000 in existing mortgage debt and the payment of various
closing costs. TCI paid a real estate brokerage commission of $22,000 to Carmel
Realty. No gain or loss was recognized.

Also in February 1997, TCI completed the sale of a .9976 acre parcel of land
in Dallas, Texas, which was also under contract for sale at December 31, 1996,
for $2.7 million in cash. TCI received net cash of $2.6 million after the
payment of various closing costs. TCI paid a real estate brokerage commission
of $103,000 to Carmel Realty. A gain of $1.4 million was recognized.

In April 1997, TCI sold a foreclosed single family residence in Scottsdale,
Arizona, for $778,000 in cash. TCI paid a real estate brokerage commission of
$31,000 to Carmel Realty. A gain of $55,000 was recognized.

In November 1997, TCI sold President's Square, a 46,509 sq. ft. shopping
center in San Antonio, Texas, for $2.6 million in cash. TCI received net cash
of $470,000 after paying off $1.9 million in existing mortgage debt and the
payment of various closing costs. TCI paid a real estate brokerage commission
of $85,000 to Carmel Realty. A gain of $554,000 was recognized.

In December 1997, TCI sold Republic Towers, a three building, 1,324,624 sq.
ft. office facility in Dallas, Texas, for $24.0 million in cash. TCI received
net cash of $23.5 million after the payment of various closing costs. TCI paid
a real estate brokerage commission of $480,000 to Carmel Realty. A gain of
$19.4 million was recognized.

In December 1997, TCI entered into a contract to sell Shaws Plaza, a 103,482
square foot shopping center in Sharon, Massachusetts, for $3.8 million. The
agreed sales price was $1.4 million less than the property's carrying value.
Accordingly, at December 31, 1997, TCI recognized a provision for loss of $1.4
million to reduce the property's carrying value to its sales price less
estimated costs of sale. In March 1998, TCI completed the sale receiving net
cash of $1.2 million after paying off $2.6 million in existing mortgage debt
and the payment of various closing costs. TCI paid a real estate brokerage
commission of $134,000 to Carmel Realty. TCI incurred no gain or loss on the
sale.

In October 1998, TCI sold approximately 19 acres of foreclosed land held for
sale in Greensboro, North Carolina for $375,000 in cash. TCI received net cash
of $371,000 after the payment of various closing costs. TCI paid a real estate
brokerage commission of $15,000 to Carmel Realty. A gain of approximately
$350,000 will be recognized.

- 88 -
<PAGE>

Partnership Properties. TCI is not limited in the proportion of its assets
which may be invested in any type of partnership interest and has no stated
criteria for purchasing interests in such partnerships.

Set forth below are the properties owned by partnerships which TCI accounts
for using the equity method and the monthly rental rate for apartments and the
average annual rental rate for commercial properties and occupancy thereof at
December 31, 1997, 1996, 1995, 1994 and 1993:

<TABLE>
<CAPTION>
RENT PER SQUARE FOOT OCCUPANCY %
- -----------------------------------------------------------------------------------------------------
UNITS/
SQUARE
PROPERTY LOCATION FOOTAGE 1997 1996 1995 1994 1993 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Apartments
- -----------------------------------------------------------------------------------------------------
Inwood Green Houston, TX 126 Units $.46 $.45 $.44 $.43 $.42 94% 93% 93% 91% 94%
/105,960 sq.
ft.
- -----------------------------------------------------------------------------------------------------
Lincoln Court Dallas, TX 55 1.04 .99 .96 .94 .94 99 98 94 98 95
Units/40,063
sq. ft.
- -----------------------------------------------------------------------------------------------------
Oaks of Inwood Houston, TX 198 .45 .44 .43 .43 .41 94 93 91 90 87
Units/167,872
sq. ft.
- -----------------------------------------------------------------------------------------------------
Office Building
- -----------------------------------------------------------------------------------------------------
MacArthur Mills Carrollton, 53,472 sq. 9.35 8.38 7.80 6.99 9.04 97 94 95 88 99
TX ft.
- -----------------------------------------------------------------------------------------------------
Shopping Centers
- -----------------------------------------------------------------------------------------------------
Chelsea Square Houston, TX 70,275 sq. 9.21 9.32 9.14 8.67 8.38 49 69 77 78 69
ft.
- -----------------------------------------------------------------------------------------------------
Summit at Fort Worth, 48,696 sq. 9.48 8.67 9.23 8.92 9.93 65 62 63 62 68
Bridgewood TX ft.
</TABLE>

TCI owns a combined 55% limited and general partnership interest in Jor-
Trans Investors Limited Partnership which owns the Lincoln Court Apartments.

TCI owns a combined 63.7% limited and general partner interest and IORI owns
a 36.3% general partner interest in Tri-City Limited Partnership ("Tri-City")
which owned the five other properties in the table above. In May 1998, Tri-City
sold 198 unit Oaks of Inwood and 126 unit Inwood Green Apartments for a total
of $3.3 million in cash. Tri-City received net cash of $1.4 million after
paying off $1.9 million in existing mortgage debt and the payment of various
closing costs. TCI received a distribution of $701,000 of such net cash. Tri-
City recognized a gain of $496,000 on the sale of which TCI's equity share was
$316,000. Tri-City paid a real estate brokerage commission of $119,000 to
Carmel Realty.

MORTGAGE LOANS. In addition to investments in real estate, a portion of
TCI's assets are invested in mortgage notes receivable, principally secured by
income-producing real estate. TCI intends to service and hold for investment
the mortgage notes in its portfolio. TCI's mortgage notes receivable consist of
first, wraparound and junior mortgage loans. TCI has not limited the amount of
mortgages which may be placed on any one piece of property, nor does TCI have
any policy as to the amount or percentage of assets which can be invested in
any specific property. Similarly, TCI is not limited in the proportion of
assets which may be invested in each type of mortgage or in any single
mortgage.

Types of Mortgage Activity. TCI may originate its own mortgage loans, as
well as acquire existing mortgage notes either directly from builders,
developers or property owners, or through mortgage banking firms, commercial
banks or other qualified brokers. BCM, in its capacity as a mortgage servicer,
services TCI's mortgage notes.

- 89 -
<PAGE>

Types of Properties Securing Mortgage Notes. The properties securing TCI's
mortgage notes receivable portfolio at September 30, 1998, consisted of an
apartment complex, a hotel, seven developed residential lots and a 34,847 sq.
ft. parcel of unimproved land. TCI's Board of Directors may alter the types of
properties securing or collateralizing mortgage loans in which TCI invests
without a vote of stockholders. TCI's Articles of Incorporation impose certain
restrictions on transactions with related parties.

At September 30, 1998, TCI's mortgage notes receivable portfolio included 3
mortgage loans with an aggregate outstanding balance of $1.7 million secured by
income-producing real estate located in the Southeast and Southwest regions of
the continental United States and 14 loans with an aggregate outstanding
balance of $691,000 which are secured by collateral other than income-producing
real estate. At September 30, 1998, less than 1% of TCI's assets were invested
in notes and interest receivable.

Based on the outstanding mortgage note balance, at September 30, 1998, 100%
of the properties (other than a hotel and unimproved land) that serve as
collateral for TCI's outstanding mortgage notes receivables at September 30,
1998 are apartments located in the Southwest region.

A summary of the activity in TCI's mortgage notes receivable portfolio
during 1997 and the nine months ending September 30, 1998 is as follows:

<TABLE>
<S> <C>
Loans in mortgage notes receivable portfolio at January 1, 1997 24
Loans funded 2
Loan foreclosed (1)
Loans paid off (6)
---
Loans in mortgage notes receivable portfolio at September 30, 1998 19
===
</TABLE>

During 1997, $4.9 million was collected in settlement of four mortgage notes
receivable and $82,000 in mortgage principal payments were received. In the
first nine months of 1998, $2.1 million was collected in settlement of two
mortgage notes receivable and $664,000 in mortgage principal payments were
received.

At September 30, 1998, less than 1% of TCI's assets were invested in
mortgage notes secured by non-income-producing real estate, comprised of a
first mortgage note secured by 34,847 sq. ft. of unimproved land in Milwaukee,
Wisconsin and seven first mortgage notes secured by developed residential lots
in Greensboro, North Carolina.

First Mortgage Loans. TCI invests in first mortgage notes, with short,
medium or long-term maturities. First mortgage loans generally provide for
level periodic payments of principal and interest sufficient to substantially
repay the loan prior to maturity, but may involve interest-only payments or
moderate amortization of principal and a "balloon" principal payment at
maturity. With respect to first mortgage loans, TCI's general policy is to
require that the borrower provide a mortgagee's title policy or an acceptable
legal title opinion as to the validity and the priority of the mortgage lien
over all other obligations, except liens arising from unpaid property taxes and
other exceptions normally allowed by first mortgage lenders in the relevant
area. TCI may grant to other lenders, participations in first mortgage loans
originated by TCI.

The following discussion briefly describes first mortgage loans funded and
the events that affected previously funded first mortgage loans during 1997 and
the first nine months of 1998.

In February 1994, TCI provided $6.7 million of purchase money financing in
conjunction with the sale of 1,406 acres of land in 16 developed residential
and commercial subdivisions located in Maumelle, Arkansas, secured by a first
mortgage on the properties sold. The borrower did not make the scheduled
February 1995 principal and interest payments. In September 1995, TCI reached a
settlement with the borrower that provided the following: (1) the payment by
the borrower of $2.5 million in cash; (2) TCI's release of all land securing

- 90 -
<PAGE>

the note; (3) TCI's acceptance of a new $1.4 million note secured by 36.3 acres
of commercial land, such note bore interest at 9.0% and matured in January
1996; and (4) TCI's receipt of 700,000 shares of the borrower's capital stock,
which the borrower had the option to repurchase at $5.00 per share for two
years from closing. The $1.4 million note matured in January 1996. In April
1998, TCI received $2.1 million in full settlement of its note and accrued but
unpaid interest. The original sale had been recorded under the cost recovery
method with gain being deferred until the note was collected. Accordingly, TCI
recognized the previously deferred gain of $2.1 million on collection of its
note receivable.

In May and September 1997, TCI accepted discounted payoffs of $2.1 million
and $2.8 million in settlement of two first mortgage notes receivable with
principal balances of $2.1 million and $2.9 million, respectively. TCI recorded
no loss on the note settlements in excess of the reserves previously
established.

In July 1998, a mortgage note receivable which had been written off in a
prior year was collected. A gain of $671,000 was recognized.

Wraparound Mortgage Loans. A wraparound mortgage loan, sometimes called an
all-inclusive loan, is a mortgage loan having an original principal balance
equal to the outstanding balance under the prior existing mortgage loan(s) plus
the amount actually advanced under the wraparound mortgage loan. Wraparound
mortgage loans may provide for full, partial or no amortization of principal.
TCI's policy is to make wraparound mortgage loans in amounts and on properties
as to which it would otherwise make first mortgage loans.

The following discussion briefly describes the events that affected
previously funded wraparound mortgage loans in 1997 and the first nine months
of 1998.

At June 30, 1998, TCI held a wraparound mortgage note secured by a K-Mart in
Wake County, North Carolina, with a principal balance of $2.5 million. In
February 1998, TCI was informed that the first lien mortgage in the amount of
$2.0 million was in default. In order to protect its interest, TCI foreclosed
on the property in August 1998 and refinanced the first lien mortgage in the
amount of $2.0 million. TCI paid $265,000 in cash to complete the refinancing.
The new mortgage bears interest at 7.51% per annum, requires monthly payments
of principal and interest of $15,721 and matures in September 2008. A mortgage
brokerage and equity refinancing fee of $19,500 was paid to BCM. No loss was
recognized on the foreclosure as the fair value of the property exceeded the
carrying value of the note receivable.

Junior Mortgage Loans. TCI may invest in junior mortgage loans. Such loans
are secured by mortgages that are subordinate to one or more prior liens either
on the fee or a leasehold interest in real estate. Recourse on such loans
ordinarily includes the real estate on which the loan is made, other collateral
and personal guarantees by the borrower. TCI's Board of Directors restricts
investment in junior mortgage loans, excluding wraparound mortgage loans, to
not more than 10% of TCI's assets. At September 30, 1998, less than 1% of TCI's
assets were invested in junior mortgage loans.

The following discussion briefly describes the events that affected
previously funded junior mortgage loans in 1997 and the first none months of
1998.

In August 1998, a mortgage note receivable with a principal balance of $2.0
million and a carrying value of $207,000 secured by a second lien on a hotel in
Lake Charles, Louisiana became delinquent. To protect its interest, TCI
purchased the first lien mortgage for $154,000. Foreclosure proceedings have
commenced and title to the property is expected to be received in the first
quarter of 1999. No loss is expected to be incurred on the foreclosure, as the
estimated fair value of the property exceeds the carrying value of the mortgage
notes receivable.

Loans Secured by Collateral Other than Real Estate. In June 1992, TCI
received ten notes receivable secured by collateral other than real estate in
satisfaction of a $622,000 obligation to TCI. At December 31,

- 91 -
<PAGE>

1997, five of the notes with a combined principal balance of $374,000 remained
outstanding. TCI's investment policy precludes the origination of loans secured
by collateral other than real estate.

Partnership Mortgage Loans. TCI owns a 60% general partner interest and IORI
owns a 40% general partner interest in Nakash Income Associates ("NIA"). NIA in
turn owns a wraparound mortgage note receivable, secured by a shopping center
in Maulden, Missouri. In August 1997, Mountain Home Associates ("MHA"), the
owner of the shopping center, refinanced the matured mortgage debt in the
amount of $850,000. TCI contributed $271,000 to the partnership to payoff the
existing $1.0 million mortgage. The new mortgage bears interest at a variable
rate, currently 9.5% per annum, requires monthly payments of principal and
interest of $13,000 and matures in May 2005.

CERTAIN FACTORS ASSOCIATED WITH REAL ESTATE AND RELATED INVESTMENTS

TCI is subject to all the risks incident to ownership and financing of real
estate and interests therein, many of which relate to the general illiquidity
of real estate investments. These risks include, but are not limited to,
changes in general or local economic conditions, changes in interest rates and
the availability of permanent mortgage financing which may render the
acquisition, sale or refinancing of a property difficult or unattractive and
which may make debt service burdensome, changes in real estate and zoning laws,
increases in real estate taxes, federal or local economic or rent controls,
floods, earthquakes, hurricanes and other acts of God and other factors beyond
the control of TCI's management or advisor. The illiquidity of real estate
investments may also impair the ability of TCI to respond promptly to changing
circumstances. TCI's management believes that such risks are partially
mitigated by the diversification by geographic region and property type of
TCI's real estate and mortgage notes receivable portfolios. However, to the
extent new property investments or mortgage lending is concentrated in any
particular region or property type, the advantages of diversification may be
mitigated.

METHOD OF OPERATING AND FINANCING

TCI's Articles of Incorporation impose no limitations on TCI's investment
policy with respect to mortgage loans and do not prohibit TCI from investing
more than a specified percentage of its assets in any one mortgage loan. TCI
may originate mortgage loans in conjunction with providing purchase money
financing of a property sale. TCI intends to service and hold for investment
the mortgage notes in its portfolio. TCI may, however, borrow against its
mortgage notes receivable using the proceeds from such borrowings to fund
additional mortgage loans or for general working capital needs of TCI. TCI also
intends to pursue its rights vigorously with respect to mortgage notes that are
in default. TCI's Board of Directors currently intends to continue its policy
of prohibiting TCI from incurring aggregate secured and unsecured indebtedness
in excess of 300% of TCI's net asset value (defined as the book value of all
assets of TCI minus all of its liabilities); however, the Board of Directors
may alter such policy at any time and may reconsider the continuation of this
policy following the Merger.

OFFICERS

The following persons currently serve as executive officers of TCI and also
serve as the executive officers of the Trust: Randall M. Paulson, President;
Karl L. Blaha, Executive Vice President -- Commercial Asset Management; Bruce
A. Endendyk, Executive Vice President; Steven K. Johnson, Executive Vice
President --Residential Asset Management; and Thomas A. Holland, Executive Vice
President and Chief Financial Officer. Their positions with TCI are not subject
to a vote of stockholders.

Although not executive officers of TCI, the following persons currently
serve as officers of TCI and also serve as officers of the Trust: Robert A.
Waldman, Senior Vice President and General Counsel, and Drew D. Potera, Vice
President and Treasurer. Their positions with TCI are not subject to a vote of
stockholders.

- 92 -
<PAGE>

THE TCI ADVISOR

Although the Board of Directors is directly responsible for managing the
affairs of TCI and for setting the policies which guide it, the day-to-day
operations of TCI are performed by BCM, a contractual advisor under the
supervision of the Board of Directors. The duties of the advisor include, among
other things, locating, investigating, evaluating and recommending real estate
and mortgage note investment and sales opportunities as well as financing and
refinancing sources to TCI. The advisor also serves as a consultant to the
Board of Directors in connection with the business plan and investment policy
decisions.

BCM has served as TCI's advisor since March 1989. BCM is a corporation of
which Messrs. Paulson, Blaha, Endendyk, Johnson and Holland serve as executive
officers. BCM is owned by a trust for the benefit of the children of Gene E.
Phillips. Prior to December 22, 1989, Mr. Phillips served as a director of BCM,
and until September 1, 1992, Mr. Phillips served as Chief Executive Officer of
BCM. Mr. Phillips serves as a representative of his children's trust which owns
BCM and, in such capacity, has substantial contact with the management of BCM
and input with respect to its performance of advisory services to TCI.

At TCI's annual meeting of stockholders held on May 8, 1997, TCI's
stockholders approved the renewal of the TCI Advisory Agreement through the
next annual meeting of TCI's stockholders. The current TCI Advisory Agreement
was executed on October 15, 1998. Subsequent renewals of the TCI Advisory
Agreement with BCM do not require the approval of TCI's stockholders but do
require the approval of TCI's Board of Directors. BCM also serves as advisor to
IORI and the Trust. The members of TCI's Board of Directors also serve as
Directors of IORI and Trustees of the Trust, and the executive officers of TCI
are also executive officers of IORI and the Trust. Mr. Phillips serves as a
general partner of SAMLP, which, until December 18, 1998, served as the general
partner of NRLP and NOLP, the operating partnership of NRLP. BCM performs
certain administrative functions for NRLP and NOLP on a cost-reimbursement
basis. BCM also serves as advisor to ART. Mr. Phillips served as a director and
Chairman of the Board of ART and President and sole director of SAMI, which is
the managing general partner of SAMLP. The executive officers of TCI are also
officers of ART, NMC and SAMI.

As of November 30, 1998, ART owned approximately 31.0% and BCM owned
approximately 10.9% of TCI's outstanding common stock, and BCM owned
approximately 53.1% and TCI owned no shares of ART's common stock.

PROPERTY MANAGEMENT

Since February 1, 1990, affiliates of BCM have provided property management
services to TCI. Currently, Carmel Ltd. provides such property management
services. Carmel Ltd. subcontracts with other entities for the provision of
property-level management services to TCI. The general partner of Carmel Ltd.
is BCM. The limited partners of Carmel Ltd. are (i) First Equity, which is 50%
owned by BCM, (ii) Gene E. Phillips and (iii) a trust for the benefit of the
children of Mr. Phillips. Carmel Ltd. subcontracts the property-level
management and leasing of 26 of TCI's commercial properties and its hotel and
the commercial properties owned by a real estate partnership in which TCI and
IORI are partners to Carmel Realty, which is a company owned by First Equity.
Carmel Realty is entitled to receive property and construction management fees
and leasing commissions in accordance with the terms of its property-level
management agreement with Carmel Ltd.

REAL ESTATE BROKERAGE

Since December 1, 1992, Carmel Realty has been engaged, on a non-exclusive
basis, to provide brokerage services for TCI. Carmel Realty is entitled to
receive a commission for property acquisitions and sales in accordance with the
following sliding scale of total fees to be paid: (i) maximum fee of 5% on the
first $2.0 million of any purchase or sale transaction of which no more than 4%
would be paid to Carmel Realty or

- 93 -
<PAGE>

affiliates; (ii) maximum fee of 4% on transaction amounts between $2.0 million
and $5.0 million of which no more than 3% would be paid to Carmel Realty or
affiliates; (iii) maximum fee of 3% on transaction amounts between $5.0 million
and $10.0 million of which no more than 2% would be paid to Carmel Realty or
affiliates; and (iv) maximum fee of 2% on transaction amounts in excess of
$10.0 million of which no more than 1 1/2% would be paid to Carmel Realty or
affiliates.

THE TCI ADVISORY AGREEMENT

BCM has served as advisor to TCI since March 1989. The current TCI Advisory
Agreement was entered into effective October 15, 1998. Renewals of the TCI
Advisory Agreement do not require the approval of TCI's stockholders but do
require the approval of TCI's Board of Directors.

Under the TCI Advisory Agreement, BCM is required to formulate and submit
annually for approval by the Board of Directors a budget and business plan for
TCI containing a twelve-month forecast of operations and cash flow, a general
plan for asset sales and acquisitions, lending, foreclosure and borrowing
activity, and other investments. BCM is required to report quarterly to the
Board of Directors on TCI's performance against the business plan. In addition,
all transactions or investments by TCI require prior approval by the Board of
Directors unless they are explicitly provided for in the approved business plan
or are made pursuant to authority expressly delegated to BCM by the Board of
Directors.

The TCI Advisory Agreement also requires prior approval of the Board of
Directors for the retention of all consultants and third party professionals,
other than legal counsel. The TCI Advisory Agreement provides that BCM shall be
deemed to be in a fiduciary relationship to TCI's stockholders, contains a
broad standard governing BCM's liability for losses by TCI, and contains
guidelines for BCM's allocation of investment opportunities as among itself,
TCI and other entities it advises.

The TCI Advisory Agreement provides for BCM to be responsible for the day-
to-day operations of TCI and to receive an advisory fee comprised of a gross
asset fee of .0625% per month (.75% per annum) of the average of the gross
asset value of TCI (total assets less allowance for amortization, depreciation
or depletion and valuation reserves) and an annual net income fee equal to 7.5%
per annum of TCI's net income.

The TCI Advisory Agreement also provides for BCM to receive an annual
incentive sales fee equal to 10% of the amount, if any, by which the aggregate
sales consideration for all real estate sold by TCI during such fiscal year
exceeds the sum of: (1) the cost of each such property as originally recorded
in TCI's books for tax purposes (without deduction for depreciation,
amortization or reserve for losses), (2) capital improvements made to such
assets during the period owned by TCI and (3) all closing costs (including real
estate commissions) incurred in the sale of such property; provided, however,
no incentive fee shall be paid unless (a) such real estate sold in such fiscal
year, in the aggregate, has produced an 8% simple annual return on TCI's net
investment including capital improvements, calculated over TCI's holding period
before depreciation and inclusive of operating income and sales consideration
and (b) the aggregate net operating income from all real estate owned by TCI
for each of the prior and current fiscal years shall be at least 5% higher in
the current fiscal year than in the prior fiscal year.

Additionally, pursuant to the TCI Advisory Agreement, BCM or an affiliate of
BCM is to receive an acquisition commission for supervising the acquisition,
purchase or long-term lease of real estate for TCI equal to the lesser of (1)
up to 1% of the cost of acquisition, inclusive of commissions, if any, paid to
nonaffiliated brokers or (2) the compensation customarily charged in arm's-
length transactions by others rendering similar property acquisition services
as an ongoing public activity in the same geographical location and for
comparable property; provided that the aggregate purchase price of each
property (including acquisition fees and all real estate brokerage commissions)
may not exceed such property's appraised value at acquisition.

- 94 -
<PAGE>

The TCI Advisory Agreement requires BCM or any affiliate of BCM to pay to
TCI one-half of any compensation received from third parties with respect to
the origination, placement or brokerage of any loan made by TCI, provided,
however, that the compensation retained by BCM or any affiliate of BCM shall
not exceed the lesser of (1) 2% of the amount of the loan committed by TCI or
(2) a loan brokerage and commitment fee which is reasonable and fair under the
circumstances.

The TCI Advisory Agreement also provides that BCM or an affiliate of BCM is
to receive a mortgage or loan acquisition fee with respect to the acquisition
or purchase of any existing mortgage loan by TCI equal to the lesser of (1) 1%
of the amount of the mortgage or loan purchased or (2) a brokerage or
commitment fee which is reasonable and fair under the circumstances. Such fee
will not be paid in connection with the origination or funding by TCI of any
mortgage loan.

Under the TCI Advisory Agreement, BCM or an affiliate of BCM is also to
receive a mortgage brokerage and equity refinancing fee for obtaining loans to
TCI or refinancing on TCI properties equal to the lesser of (1) 1% of the
amount of the loan or the amount refinanced or (2) a brokerage or refinancing
fee that is reasonable and fair under the circumstances; provided, however,
that no such fee shall be paid on loans from BCM or an affiliate of BCM without
the approval of the Board of Directors. No fee shall be paid on loan
extensions.

Under the TCI Advisory Agreement, BCM is to receive reimbursement of certain
expenses incurred by it in the performance of advisory services to TCI.

Under the TCI Advisory Agreement, all or a portion of the annual advisory
fee must be refunded by the advisor to TCI if the Operating Expenses of TCI (as
defined in the TCI Advisory Agreement) exceed certain limits specified in the
TCI Advisory Agreement based on the book value, net asset value and net income
of TCI during such fiscal year. The effect of this limitation was to require
that BCM refund $206,000 of the annual advisory fee for 1997.

Additionally, if TCI were to request that BCM render services to TCI other
than those required by the TCI Advisory Agreement, BCM or an affiliate of BCM
will be separately compensated for such additional services on terms to be
agreed upon from time to time. TCI has hired Carmel Ltd., an affiliate of BCM,
to provide property management for TCI's properties, and TCI has engaged Carmel
Realty, also an affiliate of BCM, on a non-exclusive basis, to provide
brokerage services for TCI.

BCM may only assign the TCI Advisory Agreement with the prior consent of
TCI.

- 95 -
<PAGE>

The directors and principal officers of BCM are set forth below.

<TABLE>
<S> <C>
Mickey N. Phillips Director
Ryan T. Phillips Director
Randall M. Paulson President
Karl L. Blaha Executive Vice President -- Commercial
Asset Management
Bruce A. Endendyk Executive Vice President
Thomas A. Holland Executive Vice President and Chief
Financial Officer
Steven K. Johnson Executive Vice President -- Residential
Asset Management
Cooper B. Stuart Executive Vice President
A. Cal Rossi, Jr. Executive Vice President
Clifford C. Towns, Jr. Executive Vice President -- Finance
Dan S. Allred Senior Vice President -- Land Division
Robert A. Waldman Senior Vice President, General Counsel
and Secretary
Drew D. Potera Vice President, Treasurer and Securities
Manager
</TABLE>

Mickey N. Phillips is Gene E. Phillips' brother, and Ryan T. Phillips is
Gene E. Phillips' son. Gene E. Phillips serves as a representative of the trust
established for the benefit of his children, which trust owns BCM. In such
capacity, Gene E. Phillips has substantial contact with the management of BCM
and input with respect to its performance of advisory services to TCI.

INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS

In February 1990, TCI, together with IORI, NIRT and the Trust, three real
estate entities with, at the time, the same officers, directors or trustees and
advisor as TCI, entered into a settlement of the Olive Litigation, which was
pending before the United States District Court for the Northern District of
California, relating to the operation and management of each of the entities.
On April 23, 1990, the court granted final approval of the terms of the
settlement.

On May 4, 1994, the parties entered into the Olive Modification that settled
subsequent claims of breaches of the settlement that were asserted by the
plaintiffs and that modified certain provisions of the April 1990 settlement.
The Olive Modification was preliminarily approved by the court on July 1, 1994,
and final court approval was entered on December 12, 1994. The effective date
of the Olive Modification was January 11, 1995. Pursuant to the Olive
Modification, certain related party transactions which TCI may enter into prior
to April 28, 1999, require the unanimous approval of TCI's Board of Directors.
In addition, such related party transactions are to be discouraged and may only
be entered into in exceptional circumstances and after a determination by the
Board of Directors that the transaction is in the best interests of TCI and
that no other opportunity exists that is as good as the opportunity presented
by such transaction.

The Olive Modification requirements for related party transactions do not
apply to direct contractual agreements for services between TCI and the advisor
(BCM) or one of its affiliates (including the TCI

- 96 -
<PAGE>

Advisory Agreement, the brokerage agreement with Carmel Realty and the property
management contracts). These agreements, pursuant to the specific terms of the
Olive Modification, require the prior approval by two-thirds of the Directors
of TCI, and if required, approval by a majority of TCI's stockholders. The
Olive Modification requirements for related party transactions also do not
apply to joint ventures between or among TCI and IORI, NIRT or the Trust or any
of their affiliates or subsidiaries and a third party having no prior or
intended future business of financial relationship with Gene E. Phillips,
William S. Friedman, the advisor (BCM), or any affiliate of such parties. Such
joint ventures may be entered into on the affirmative vote of a majority of the
Directors of TCI.

The Court retained jurisdiction to enforce the Olive Modification, and
during August and September 1996, the Court held evidentiary hearings to assess
compliance with the terms of the Olive Modification by the various parties. The
Court issued no ruling or order with respect to the matters addressed at the
hearings.

Separately, in 1996, legal counsel for the plaintiffs notified the Board of
Directors that he intended to assert that certain actions taken by the Board of
Directors breached the terms of the Olive Modification. On January 27, 1997,
the parties entered into the Olive Amendment to the Olive Modification, which
was submitted to the Court for approval on January 29, 1997. The Olive
Amendment provides for the settlement of all matters raised at the evidentiary
hearings and by plaintiffs' counsel in his notices to the Board of Directors of
TCI. On May 2, 1997, a hearing was held for the Court to consider approval of
the Olive Amendment. As a result of the hearing, the parties entered into a
revised Olive Amendment. The Court issued an order approving the Olive
Amendment on July 3, 1997.

The Olive Amendment provided for the addition of four new unaffiliated
members to TCI's Board of Directors and set forth new requirements for the
approval of any transactions with affiliates until April 28, 1999. In addition,
TCI, IORI, the Trust and their shareholders released the defendants from any
claims relating to the plaintiffs' allegations and matters which were the
subject of the evidentiary hearings. The plaintiffs' allegations of any
breaches of the Olive Modification shall be settled by mutual agreement of the
parties or, lacking such agreement, by an arbitration proceeding.

Under the Olive Amendment, all shares of TCI owned by Gene E. Phillips or
any of his affiliates shall be voted at all stockholder meetings of TCI held
until April 29, 1999, in favor of all new members of the Board of Directors
added under the Olive Amendment. The Olive Amendment also requires that, until
April, 28, 1999, all shares of TCI owned by Mr. Phillips or his affiliates in
excess of forty percent (40%) of TCI's outstanding shares shall be voted in
proportion to the votes cast by all non-affiliated stockholders of TCI.

In accordance with the Olive Amendment, Richard W. Douglas, Larry E. Harley
and R. Douglas Leonhard were added to the Board of Directors of TCI in January
1998 and Murray Shaw was added to the Board of Directors of TCI in February
1998.

CERTAIN BUSINESS RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

CERTAIN BUSINESS RELATIONSHIPS. In February 1989, the Board of Trustees
voted to retain BCM as TCI's advisor. TCI's executive officers serve also as
executive officers of BCM.

Since February 1990, affiliates of BCM have provided property management
services to TCI. Currently, Carmel Ltd. provides such property management
services. The general partner of Carmel Ltd. is BCM. The limited partners of
Carmel Ltd. are (1) First Equity, which is 50% owned by BCM, (2) Mr. Phillips
and (3) a trust for the benefit of the children of Mr. Phillips. Carmel Ltd.
subcontracts the property-level management and leasing of 26 of TCI's
commercial properties and its hotel and the commercial properties owned by a
real estate partnership in which TCI and IORI are partners to Carmel Realty,
which is a company owned by First Equity.

- 97 -
<PAGE>

Prior to December 1, 1992, affiliates of BCM provided brokerage services to
TCI and received brokerage commissions in accordance with the TCI Advisory
Agreement. Since December 1, 1992, TCI has engaged, on a non-exclusive basis,
Carmel Realty to perform brokerage services for TCI. Carmel Realty is a company
owned by First Equity.

The Directors and executive officers of TCI also serve as Trustees or
directors and executive officers of IORI and the Trust. The Directors owe
fiduciary duties to such entities as well as to TCI under applicable law. IORI
and the Trust have the same relationship with BCM as TCI. TCI owned
approximately 22.7% of the outstanding shares of common stock of IORI at
November 30, 1998. Gene E. Phillips serves as a general partner of SAMLP, which
served, until December 18, 1998, as the general partner of NRLP and NOLP. BCM
performs certain administrative functions for NRLP and NOLP on a cost-
reimbursement basis. BCM also serves as advisor to ART. Mr. Phillips served as
Chairman of the Board and director of ART until November 16, 1992. Messrs.
Paulson, Blaha, Endendyk, Holland and Johnson serve as executive officers of
ART.

From April 1992 to December 31, 1992, Ted P. Stokely was employed as a paid
consultant and since January 1, 1993 as a part-time unpaid consultant for
Eldercare, a nonprofit corporation engaged in the acquisition of low income and
elderly housing. Eldercare has a revolving loan commitment from Syntek West,
Inc. ("SWI"), of which Gene E. Phillips is the sole shareholder. Eldercare
filed for bankruptcy protection in July 1993 and was dismissed from bankruptcy
in October 1994. Eldercare filed again for bankruptcy protection in May 1995,
and was reorganized in bankruptcy in February 1996.

RELATED PARTY TRANSACTIONS. Historically, TCI has engaged in and may
continue to engage in business transactions, including real estate
partnerships, with related parties. TCI's management believes that all of the
related party transactions represented the best investments available at the
time and were at least as advantageous to TCI as investments that could have
been obtained from unrelated third parties.

TCI is a partner with IORI in the Tri-City Limited Partnership and Nakash
Income Associates. TCI owns 345,728 shares of the common stock of IORI, an
approximate 22.7% interest.

In 1997, TCI paid BCM and its affiliates $2.8 million in advisory and net
income fees, $517,000 in mortgage brokerage and equity refinancing fees, $3.0
million in property acquisition fees, $738,000 in real estate brokerage
commission and $2.3 million in property and construction management fees and
leasing commissions, net of property management fees paid to subcontractors,
other than Carmel Realty. In addition, as provided in the TCI Advisory
Agreement, BCM received cost reimbursements from TCI of $1.2 million in 1997.

On December 5, 1989, TCI's Board of Directors approved a share repurchase
program. The Board of Directors authorized TCI to repurchase a total of 687,000
shares of TCI common stock pursuant to such program. Through November 30, 1998,
TCI had repurchased 409,765 shares of TCI common stock pursuant to such program
at a cost of TCI of $3.3 million. In 1998, TCI repurchased 21,950 shares at a
cost of $336,000.

- 98 -
<PAGE>

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS. The following table sets
forth the ownership of TCI common stock, both beneficially and of record, both
individually and in the aggregate, for those persons or entities known by TCI
to be beneficial owners of more than 5% of TCI common stock as of the close of
business on November 30, 1998.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP CLASS (1)
------------------- ----------------- ----------
<S> <C> <C>
American Realty Trust, Inc. 1,201,810 31.0%
10670 N. Central Expressway
Suite 300
Dallas, Texas 75231

Basic Capital Management, Inc. 422,057 10.9%
10670 N. Central Expressway
Suite 600
Dallas, Texas 75231

Maurice A. Halperin 326,450 8.4%
2500 North Military Trail
Suite 225
Boca Raton, Florida 33431
- --------
(1) Percentages are based upon 3,875,944 shares of TCI common stock outstanding
at November 30, 1998.

SECURITY OWNERSHIP OF MANAGEMENT. The following table sets forth the
ownership of TCI common stock, both beneficially and of record, both
individually and in the aggregate, for the Directors and executive officers of
TCI as of the close of business on November 30, 1998.

<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP CLASS(1)
------------------------ ----------------- ----------
<S> <C> <C>
All Directors and Executive Officers 1,731,610(2)(3) 44.7%
as a group (12 individuals)
</TABLE>
- --------
(1) Percentage is based upon 3,875,944 shares of TCI common stock outstanding
at November 30, 1998.
(2) Includes 80,268 shares owned by the Trust of which TCI's Directors
may be deemed to be beneficial owners by virtue of their positions
as Trustees of the Trust. The Directors of TCI disclaim beneficial
ownership of such shares. Also includes 1,000 shares owned directly
by Ted P. Stokely.
(3) Includes 26,475 shares owned by SAMLP, 422,057 shares owned by BCM and
1,201,810 shares owned by ART, of which the executive officers of TCI may
be deemed to be beneficial owners by virtue of their position as executive
officers or directors of SAMI, BCM and ART. The executive officers of TCI
disclaim beneficial ownership of such shares. Each of the directors of ART
may be deemed to be beneficial owners of the shares owned by ART by virtue
of their positions as directors of ART. Each of the directors of BCM may be
deemed to be beneficial owners by virtue of their positions as directors of
BCM. The directors of ART and BCM disclaim such beneficial ownership.

- 99 -
<PAGE>

BUSINESS AND PROPERTIES OF THE TRUST

GENERAL

The Trust is a California business trust organized pursuant to a declaration
of trust dated August 27, 1980, and amended and restated as of May 27, 1987, as
amended pursuant to (1) Amendment No. 1 to the Second Amended and Restated
Declaration of Trust of Consolidated Capital Special Trust, (2) Amendment
Number 2 to the Second Amended and Restated Declaration of Trust of Continental
Mortgage and Equity Trust (formerly Consolidated Capital Special Trust), (3)
Amendment Number 3 to the Second Amended and Restated Declaration of Trust of
Continental Mortgage and Equity Trust (formerly Consolidated Capital Special
Trust), and (4) Amendment No. 4 to the Second Amended and Restated Declaration
of Trust of Continental Mortgage and Equity Trust (as amended, the "Declaration
of Trust"). The Trust commenced operations on December 3, 1980. The Trust has
elected to be treated as a REIT under Sections 856 through 860 of the Code. The
Trust has, in the opinion of the Trust's management, qualified for federal
taxation as a REIT for each year subsequent to December 31, 1980. See "Proposed
Incorporation Procedure and Merger -- Business Activities after Incorporation
Procedure and Merger".

The Trust's Shares are traded on the NASDAQ under the symbol "CMETS." The
Trust's real estate portfolio at September 30, 1998, consisted of 65 properties
held for investment, five properties held for sale, primarily obtained through
foreclosure, and one equity method real estate partnership (owning two office
buildings). 24 of the properties held for investment were purchased during 1997
or 1998. The Trust's mortgage notes receivable portfolio at September 30, 1998
consisted of six mortgage loans. The Trust's real estate and mortgage note
receivable portfolios are more fully discussed below.

The Trust's principal executive offices are located at 10670 North Central
Expressway, Suite 300, Dallas, Texas 75231. In the opinion of the Trust's
management, the Trust's offices are suitable and adequate for its present
operations.

BUSINESS PLAN AND INVESTMENT POLICIES

The Trust's primary business and only industry segment is investing in
equity interests in real estate through direct acquisitions and partnerships
and financing real estate and real estate related activities through
investments in mortgage loans, including first, wraparound and junior mortgage
loans. The Trust's real estate is located throughout the continental United
States. Information regarding the real estate and mortgage notes receivable
portfolios of the Trust is set forth below and in Schedules III and IV,
respectively, to the Consolidated Financial Statements included in the "Index
to Financial Statements" included in the Trust's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998, which is incorporated by reference
herein.

The business of the Trust is not seasonal. The Trust has determined to
continue to pursue a balanced investment policy, seeking both current income
and capital appreciation. With respect to new investments, the Trust's plan of
operation is to continue to make equity investments in real estate and to
continue its program of investing in capital improvements and emphasizing high
maintenance standards with respect to its existing real estate portfolio. The
Trust has determined that it will no longer actively seek to fund or purchase
mortgage loans. It may, however, in selected instances, originate mortgage
loans or it may provide purchase money financing in connection with a property
sale. The Trust does intend to service and may either hold for investment or
sell any or all of the mortgage notes currently in its portfolio. The Trust
also intends to pursue its rights vigorously with respect to mortgage notes
that are in default.

TRUST ASSETS

Details of the Trust's real estate and mortgage notes receivable portfolios
at December 31, 1997 are set forth in Schedules III and IV, respectively, to
the Consolidated Financial Statements included under the "Index

- 100 -
<PAGE>

to Financial Statements" included in the Trust's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998, which is incorporated by reference
herein. The discussion set forth below under the headings "Business and
Properties of the Trust -- Trust Assets -- Real Estate" and "-- Trust Assets --
Mortgage Loans" provide certain summary information concerning the Trust's real
estate and mortgage notes receivable portfolios.

The Trust's real estate portfolio consists of properties held for
investment, properties held for sale, which were primarily acquired through
foreclosure of the collateral securing mortgage notes receivable, and an
investment in a partnership. The Trust holds a fee simple title to all of the
properties in its real estate portfolio. The discussion set forth below under
the heading "-- Real Estate" provides certain summary information concerning
the Trust's properties held for investment, properties held for sale and its
partnership investment.

The Trust's real estate is geographically diversified. At September 30,
1998, the Trust held investments in apartments and/or commercial properties in
each geographic region of the continental United States. The Trust's apartments
and commercial properties are concentrated in the Southeast and Southwest
regions, as shown more specifically in the table under "-- Real Estate" below.
At September 30, 1998, the Trust held mortgage notes receivable secured by real
estate located in the Southeast, Southwest and Midwest regions of the
continental United States with a concentration in the Southeast and Southwest
regions, as shown more specifically in the table under "-- Mortgage Loans"
below.

At September 30, 1998, none of the Trust's properties, its partnership
investment or a mortgage note receivable exceeded 10% of the Trust's total
assets. At September 30, 1998, 87% of the Trust's assets consisted of
properties held for investment, 2% consisted of properties held for sale, less
than 1% consisted of an investment in a partnership and 1% consisted of
mortgage notes and interest receivable. The remaining 10% of the Trust's assets
were cash, cash equivalents, marketable equity securities and other assets. The
percentage of the Trust's assets invested in any one category is subject to
change and that no assurance can be given that the composition of the Trust's
assets in the future will approximate the percentages listed herein.

To continue to qualify for federal taxation as a REIT under the Code, the
Trust is required, among other things, to hold at least 75% of the value of its
total assets in real estate assets, government securities, cash and cash
equivalents at the close of each quarter of each taxable year. See "Proposed
Incorporation Procedure and Merger -- Business Activities after Incorporation
Procedure and Merger".

GEOGRAPHIC LOCATION OF REAL ESTATE INVESTMENTS. The Trust has divided the
continental United States into the following geographic regions.

Northeast region comprised of the states of Connecticut,
Delaware, Maryland, Massachusetts, New Hampshire, New Jersey,
New York, Pennsylvania, Rhode Island and Vermont and the
District of Columbia. The Trust has 1 commercial property in
this region.

Southeast region comprised of the states of Alabama, Florida,
Georgia, Mississippi, North Carolina, South Carolina, Tennessee
and Virginia. The Trust has 6 apartment complexes and 8
commercial properties in this region.

Southwest region comprised of the states of Arizona, Arkansas,
Louisiana, New Mexico, Oklahoma and Texas. The Trust has 21
apartment complexes and 12 commercial properties in this region.

Midwest region comprised of the states of Illinois, Indiana,
Iowa, Kansas, Kentucky, Michigan, Minnesota, Missouri, Nebraska,
North Dakota, Ohio, South Dakota, West Virginia and Wisconsin.
The Trust has 2 apartment complexes in this region.

Mountain region comprised of the states of Colorado, Idaho,
Montana, Nevada, Utah and Wyoming. The Trust has 3 apartment
complexes and 2 commercial properties in this region.

Pacific region comprised of the states of California, Oregon and
Washington. The Trust has 2 apartment complexes in this region.

- 101 -
<PAGE>

REAL ESTATE. At September 30, 1998, approximately 90% of the Trust's assets
were invested in real estate. The Trust invests in real estate located
throughout the continental United States, either on a leveraged or nonleveraged
basis. The Trust's real estate portfolio consists of properties held for
investment, properties held for sale, which were primarily obtained through
foreclosure of the collateral securing mortgage notes receivable, an investment
in a partnership and investments in the equity securities of real estate
entities.

Types of Real Estate Investments. The Trust's real estate consists of
commercial properties (office buildings, industrial facilities and shopping
centers) and apartments or similar properties having established income-
producing capabilities. In selecting new real estate investments, the location,
age and type of property, gross rentals, lease terms, financial and business
standing of tenants, operating expenses, fixed charges, land values and
physical condition are among the factors considered. The Trust may acquire
properties subject to or assume existing debt and may mortgage, pledge or
otherwise obtain financing for its properties. The Trust's Board of Trustees
may alter the types of and criteria for selecting new real estate investments
and for obtaining financing without a vote of shareholders to the extent such
policies are not governed by the Trust's Declaration of Trust.

Although the Trust has typically invested in developed real estate, the
Trust may also invest in new construction or development either directly or in
partnership with nonaffiliated parties or affiliates (subject to approval by
the Trust's Board of Trustees). To the extent that the Trust invests in
construction and development projects, the Trust would be subject to business
risks, such as cost overruns and construction delays, associated with such
higher risk projects.

As of September 30, 1998, the Trust did not have any properties on which
significant capital improvements were in process.

In the opinion of the Trust's management, the properties owned by the Trust
are adequately covered by insurance.

The following table sets forth the percentages, by property type and
geographic region, of the Trust's real estate (other than unimproved land as
described below) at September 30, 1998:

<TABLE>
<CAPTION>
COMMERCIAL
REGION APARTMENTS PROPERTIES
------ ---------- ----------
<S> <C> <C>
Northeast -% 1.9%
Southeast 18.6 27.1
Southwest 59.6 64.5
Midwest 12.2 -
Mountain 5.1 6.5
Pacific 4.5 -
----- -----
100.0% 100.0%
===== =====
</TABLE>

The foregoing table is based solely on the number of apartment units and
amount of commercial square footage owned by the Trust and does not reflect the
value of the Trust's investment in each region. The Trust also owns 11 parcels
of unimproved land, 1 parcel of 5 acres in the Southeast region and 11 parcels
of 4.9 acres, 163 acres, 140 acres, 156 acres, 103 acres, 128 acres, 236 acres,
16.8 acres, 55.7 acres, 100.2 acres and 36.4 acres in the Southwest region. The
Trust also owns a 18,000 sq. ft. parcel of developed land in the Southwest
region. See Schedule III to the Consolidated Financial Statements included in
the "Index to Financial Statements" included in the Trust's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998, which is incorporated by
reference herein, for a more detailed description of the Trust's real estate
portfolio.

- 102 -
<PAGE>

A summary of the activity in the Trust's owned real estate portfolio during
1997 and for the first nine months of 1998 is as follows:

<TABLE>
<S> <C>
Owned properties in real estate portfolio at January 1, 1997............. 54
Properties purchased..................................................... 24
Properties sold.......................................................... (8)
---
Owned properties in real estate portfolio at September 30, 1998.......... 70
===
</TABLE>

- 103 -
<PAGE>

Properties Held for Investment. Set forth below are the Trust's properties
held for investment and the monthly rental rate for apartments and the average
annual rental rate for commercial properties and occupancy thereof at December
31, 1997, 1996, 1995, 1994 and 1993:

RENT PER SQUARE FOOT OCCUPANCY %
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
UNITS/
SQUARE
PROPERTY LOCATION FOOTAGE 1997 1996 1995 1994 1993 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Apartments
- -----------------------------------------------------------------------------------------------------
4242 Dallas, 76 units/ $.79 $.75 $.72 $.71 $.71 98% 96% 95% 96% 95%
Cedar TX 60,600
Springs sq. ft.
- -----------------------------------------------------------------------------------------------------
Applecreek Dallas, 216 .53 .52 .50 .48 .48 92 90 90 88 83
TX units/
225,952
sq. ft.
- -----------------------------------------------------------------------------------------------------
Camelot Largo, FL 120 .50 .48 .48 .46 .44 98 94 93 98 97
units/
141,024
sq. ft.
- -----------------------------------------------------------------------------------------------------
Country Tampa, FL 227 .53 .51 .51 .48 .46 91 93 91 91 96
Crossing units/
199,952
sq. ft.
- -----------------------------------------------------------------------------------------------------
Cypresstree Houston, 168 .57 * * * * 83 * * * *
TX units/
133,104
sq. ft.
- -----------------------------------------------------------------------------------------------------
Eagle Los 99 units/ .93 * * * * 92 * * * *
Rock Angeles, 68,614
CA sq. ft.
- -----------------------------------------------------------------------------------------------------
El San 190 .64 .64 .63 .61 .56 95 89 92 93 100
Chapparal Antonio, units/
TX 174,220
sq. ft.
- -----------------------------------------------------------------------------------------------------
Fairways Longview, 152 .51 .51 .50 .48 .37 91 91 90 91 89
TX units/
134,176
sq. ft.
- -----------------------------------------------------------------------------------------------------
Forest Denton, 56 units/ .61 .59 .57 .53 .64 90 98 95 96 95
Ridge TX 65,480
sq. ft.
- -----------------------------------------------------------------------------------------------------
Fountain Texas 166 .53 .52 .52 .50 * 95 90 90 95 *
Lake City, TX units/
161,220
sq. ft.
- -----------------------------------------------------------------------------------------------------
Glenwood Addison, 168 .70 .66 * * * 97 96 * * *
TX units/
134,432
sq. ft.
- -----------------------------------------------------------------------------------------------------
Grove Plano, TX 188 .69 .65 * * * 93 95 * * *
Park units/
143,556
sq. ft.

</TABLE>

- 104 -
<PAGE>

RENT PER SQUARE FOOT OCCUPANCY %
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
UNITS/
SQUARE
PROPERTY LOCATION FOOTAGE 1997 1996 1995 1994 1993 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Apartments
- ----------------------------------------------------------------------------------------------------------
Heritage Jacksonville, 301 $ .60 $.58 $.55 $ * $ * 92% 92% 94% *% *%
on the FL units/
River 289,490
sq. ft.
- ----------------------------------------------------------------------------------------------------------
In the Gainesville, 242 .50 .48 .48 .44 * 97 92 98 96 *
Pines FL units/
294,860
sq. ft.
- ----------------------------------------------------------------------------------------------------------
Madison Houston, TX 180 .58 * * * * 90 * * * *
at Bear units/
Creek 138,448
sq. ft.
- ----------------------------------------------------------------------------------------------------------
McCallum Dallas, TX 322 .88 .84 .81 .76 * 96 98 98 98 *
Crossing units/
172,796
sq. ft.
- ----------------------------------------------------------------------------------------------------------
McCallum Dallas, TX 275 .83 .80 .76 * * 96 97 95 * *
Glen units/
159,850
sq. ft.
- ----------------------------------------------------------------------------------------------------------
Oak Park Clute, TX 108 .50 .49 .50 .48 * 94 79 73 81 *
IV units/
78,708
sq. ft.
- ----------------------------------------------------------------------------------------------------------
Oak Run Pasadena, TX 160 .69 .68 * * * 92 96 * * *
units/
128,016
sq. ft.
- ----------------------------------------------------------------------------------------------------------
Park at San Antonio, 211 .53 .52 * * * 91 96 * * *
Colonnade TX units/
188,000
sq. ft.
- ----------------------------------------------------------------------------------------------------------
Park Lane Dallas, TX 97 units/ .58 .55 .53 .51 .48 91 93 92 93 89
87,260
sq. ft.
- ----------------------------------------------------------------------------------------------------------
Parkwood San 178 .65 .64 .62 .61 * 96 95 98 93 *
Knoll Bernardino, units/
CA 149,802
sq. ft.
- ----------------------------------------------------------------------------------------------------------
Pierce Denver, CO 57 units/ 1.01 .93 .91 .88 * 97 97 97 98 *
Tower 45,120
sq. ft.
- ----------------------------------------------------------------------------------------------------------
Quail Balch 131 .65 .63 .58 .53 .52 95 99 99 98 90
Oaks Springs, TX units/
72,848
sq. ft.

</TABLE>

- 105 -
<PAGE>

RENT PER SQUARE FOOT OCCUPANCY %
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
UNITS/
SQUARE
PROPERTY LOCATION FOOTAGE 1997 1996 1995 1994 1993 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Apartments
- -------------------------------------------------------------------------------------------------------
Somerset Texas City, 200 $ .60 $ .59 $ .60 $ .52 $ .49 92% 89% 91% 91% 94%
TX units/
163,368
sq. ft.
- -------------------------------------------------------------------------------------------------------
Stone Oak San Antonio, 252 .60 .60 .58 .55 .51 92 88 93 93 97
TX units/
187,686
sq. ft.
- -------------------------------------------------------------------------------------------------------
Sunset Waukegan, IL 414 .80 .79 .76 .73 * 90 88 95 91 *
Lake units/
302,640
sq. ft.
- -------------------------------------------------------------------------------------------------------
Trails at Houston, TX 240 .61 * * * * 95 * * * *
Windfern units/
173,376
sq. ft.
- -------------------------------------------------------------------------------------------------------
Willow El Paso, TX 112 .47 .47 .52 .51 * 93 87 80 94 *
Creek units/
103,140
sq. ft.
- -------------------------------------------------------------------------------------------------------
Willo- Pensacola, 152 .52 .51 .46 * * 89 96 66 * *
Wick FL units/
Gardens 153,360
sq. ft.
- -------------------------------------------------------------------------------------------------------
Willow North 104 .50 .50 .47 * * 98 93 99 * *
Wick Augusta, SC units/
94,128
sq. ft.
- -------------------------------------------------------------------------------------------------------
Woodbridge Westminster, 194 .88 .83 .82 .72 * 96 97 97 79 *
CO units/
104,500
sq. ft.
- -------------------------------------------------------------------------------------------------------
Office
Buildings
- -------------------------------------------------------------------------------------------------------
3400 Dallas, TX 74,000 13.42 10.50 * * * 95 98 * * *
Carlisle sq. ft.
- -------------------------------------------------------------------------------------------------------
Amoco New Orleans, 378,244 12.25 9.93 * * * 66 33 * * *
LA sq. ft.
- -------------------------------------------------------------------------------------------------------
Bay Plaza Tampa, FL 75,780 12.30 * * * * 95 * * * *
sq. ft.
- -------------------------------------------------------------------------------------------------------
Durham Durham, NC 207,171 15.33 * * * * 88 * * * *
Centre sq. ft.
- -------------------------------------------------------------------------------------------------------
Hampton Dallas, TX 104,001 15.18 12.80 * * * 79 92 * * *
Court sq. ft.

</TABLE>

- 106 -
<PAGE>

RENT PER SQUARE FOOT OCCUPANCY %
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
SQUARE
PROPERTY LOCATION FOOTAGE 1997 1996 1995 1994 1993 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Office
Buildings
- --------------------------------------------------------------------------------------------------------
Jefferson Washington, 71,877 $27.71 $ * $ * $ * $ * 87% *% *% *% *%
D.C. sq. ft.
- --------------------------------------------------------------------------------------------------------
NASA Clear Lake, 78,159 10.27 10.46 10.00 9.74 10.68 76 64 55 63 66
Office TX sq. ft.
Park
- --------------------------------------------------------------------------------------------------------
Westgrove Addison, TX 78,326 7.33 * * * * 67 * * * *
Air Plaza sq. ft.
- --------------------------------------------------------------------------------------------------------
Windsor Windcrest, 80,522 13.32 11.38 10.22 9.56 9.01 58 84 87 78 77
Plaza TX sq. ft.
- --------------------------------------------------------------------------------------------------------
Industrial
Warehouses
- --------------------------------------------------------------------------------------------------------
4050 Memphis, TN 112,382 2.18 1.92 2.06 2.19 2.04 100 37 67 91 79
Getwell sq. ft.
- --------------------------------------------------------------------------------------------------------
5360 Atlanta, GA 30,000 2.45 2.19 2.26 2.14 1.92 100 32 32 99 96
Tulane sq. ft.
- --------------------------------------------------------------------------------------------------------
Brookfield Chantilly, 63,504 6.26 6.19 6.00 * * 100 100 85 * *
Corporate VA sq. ft.
Center
- --------------------------------------------------------------------------------------------------------
Central Dallas, TX 216,035 1.48 .99 * * * 100 100 * * *
Storage sq. ft.
- --------------------------------------------------------------------------------------------------------
Kelly Dallas, TX 330,334 2.96 2.43 2.20 * * 95 93 88 * *
Warehouses sq. ft.
- --------------------------------------------------------------------------------------------------------
McLeod Orlando, FL 110,914 6.69 6.38 6.09 6.08 * 96 80 83 73 *
Commerce sq. ft.
Center

</TABLE>

- 107 -
<PAGE>

RENT PER SQUARE FOOT OCCUPANCY %
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
SQUARE
PROPERTY LOCATION FOOTAGE 1997 1996 1995 1994 1993 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Northgate Marietta, 208,386 $4.02 $3.91 $3.82 $3.70 $3.33 100% 100% 89% 100% 76%
Distribution GA sq. ft.
- -----------------------------------------------------------------------------------------------------
Shady Dallas, TX 42,900 3.18 2.25 * * * 66 * * * *
Trail sq. ft.
- -----------------------------------------------------------------------------------------------------
Space San 101,500 2.04 1.93 2.12 * * 72 77 100 * *
Center Antonio, sq. ft.
TX
- -----------------------------------------------------------------------------------------------------
Sullyfield Chantilly, 243,813 5.96 5.23 5.17 * * 96 90 84 * *
Commerce VA sq. ft.
Center
- -----------------------------------------------------------------------------------------------------
Shopping
Centers
- -----------------------------------------------------------------------------------------------------
Promenade Highland 133,558 9.56 9.35 * * * 96 80 * * *
Ranch, CO sq. ft.
- -----------------------------------------------------------------------------------------------------
Rio Pinar Orlando, 113,638 8.54 8.33 8.26 8.31 8.08 91 88 89 85 88
FL sq. ft.
- -----------------------------------------------------------------------------------------------------
Land Acres
- -----------------------------------------------------------------------------------------------------
5700 Atlanta, 3.8 Acres
Tulane GA
- -----------------------------------------------------------------------------------------------------
McKinney McKinney, 140 Acres
140 TX
- -----------------------------------------------------------------------------------------------------
OPUBCO Collin 156 Acres
County, TX
- -----------------------------------------------------------------------------------------------------
Stacy Allen, TX 163 Acres
Road
- -----------------------------------------------------------------------------------------------------
State Collin 236 Acres
Highway County, TX
121
- -----------------------------------------------------------------------------------------------------
Watters Collin 103 Acres
Road County, TX

</TABLE>

- --------
* Property was purchased in 1997, 1996, 1995 or 1994.

- 108 -
<PAGE>

Occupancy presented above is without reference to whether leases in effect
are at, below or above market rates.

In January 1997, the Trust purchased the Madison at Bear Creek Apartments, a
180 unit apartment complex in Houston, Texas, for $3.5 million. The Trust paid
$800,000 in cash and assumed the existing mortgage of $2.7 million. The
mortgage bears interest at a variable rate, currently 9.6875% per annum,
adjusted semi-annually, requires monthly payments of principal and interest of
$22,704, also adjusted annually, and matures in June 1999. The Trust paid a
real estate brokerage commission of $125,000 to Carmel Realty and a $35,000
acquisition fee to BCM.

In February 1997, the Trust purchased the Watters Road land, 103 acres of
undeveloped land on State Highway 121 in Collin County, Texas, for $1.7 million
in cash. The Trust paid a real estate brokerage commission of $68,000 to Carmel
Realty and a $17,000 acquisition fee to BCM.

Also in February 1997, the Trust purchased the Jefferson Building, a 71,877
sq. ft. office building in Washington, D.C., for $13.2 million. The Trust paid
$4.1 million in cash and obtained new mortgage financing of $9.1 million. The
mortgage bears interest at a variable rate, currently 8.5% per annum, requires
monthly payments of interest only and matures in March 1999. The Trust paid a
real estate brokerage commission of $319,000 to Carmel Realty and a $132,000
acquisition fee to BCM.

In March 1997, the Trust obtained mortgage financing in the amount of $4.0
million secured by the unencumbered 378,244 sq. ft. AMOCO Office Building, in
New Orleans, Louisiana and by ten mortgage notes receivable, with a combined
principal balance, at the time, of $2.8 million. The Trust received net cash of
$3.8 million after payment of various closing costs. The mortgage bore interest
at 9.0% per annum, required monthly payments of principal and interest of
$35,989 and was scheduled to mature in March 1999. The Trust paid BCM a
mortgage brokerage and equity refinancing fee of $40,000. As discussed below,
under "Mortgage Loans," three of the mortgage notes receivable pledged as
additional collateral on the AMOCO mortgage, with a combined principal balance
of $1.3 million, were paid in full in June, August and November 1997. Such
payments were remitted to the lender as a paydown of the AMOCO mortgage. In
March 1998, the Trust refinanced the AMOCO mortgage in the amount of $15.0
million. The Trust received net cash of $10.9 million after paying off $3.8
million in existing mortgage debt and the payment of various closing costs. The
lender has committed to fund an additional $1.0 million in tenant improvements.
The new mortgage bears interest at 8.7% per annum, requires monthly payments of
interest only and matures in April 2001. The Trust paid BCM a mortgage
brokerage and equity refinancing fee of $150,000.

In April 1997, the Trust purchased the OPUBCO land, 156 acres of undeveloped
land in Collin County, Texas, for $3.0 million. In conjunction with the
purchase, the Trust obtained mortgage financing secured by the land and by two
other parcels of land in the amount of $4.2 million. The Trust received net
cash of $1.2 million. The mortgage bears interest at 9.5% per annum, requires
monthly payments of interest only and matures in April 2000. The Trust paid a
real estate brokerage commission of $109,000 to Carmel Realty and an
acquisition fee of $30,000 to BCM.

Also in April 1997, the Trust refinanced the mortgage debt secured by the
152 unit Willo-Wick Gardens Apartments in Pensacola, Florida in the amount of
$3.3 million. The Trust received net cash of $311,000 after paying off $2.8
million in existing mortgage debt and the payment of various closing costs. The
new mortgage bears interest at 9.13% per annum, requires monthly payments of
principal and interest of $27,988 and matures in May 2007. The Trust paid BCM a
mortgage brokerage and equity refinancing fee of $33,000.

In May 1997, the Trust purchased the Trails at Windfern, a 240 unit
apartment complex in Houston, Texas, for $4.2 million. The Trust paid $769,000
in cash, assumed the existing mortgage of $3.2 million with the seller
providing purchase money financing of an additional $150,000. The $3.2 million
mortgage bears interest at a variable rate, currently 9.0% per annum, adjusted
annually, requires monthly payments of principal and interest of $26,674 and
matures in January 1999. The $150,000 purchase money financing bears interest
at 8.0% per annum, requires monthly payments of interest only and matures in
May 2000. The Trust paid a real estate brokerage commission of $144,000 to
Carmel Realty and an acquisition fee of $42,000 to BCM.

- 109 -
<PAGE>

Also in May 1997, the Trust modified and extended the mortgage secured by
the 113,638 sq. ft. Rio Pinar Shopping Center in Orlando, Florida. In
conjunction with the modification, the Trust made a principal reduction payment
of $500,000. The modified and extended mortgage bears interest at 9.0% per
annum, requires monthly payments of principal and interest of $49,465 and has
an extended maturity of March 1999. $1.0 million of the mortgage is recourse to
the Trust.

In June 1997, the Trust purchased Bay Plaza, a 75,780 square foot office
building in Tampa, Florida, for $4.3 million. The Trust paid $1.2 million in
cash, assumed the existing mortgage of $2.1 million with the seller providing
purchase money financing of an additional $1.0 million. The $2.1 million
mortgage bears interest at 8.3% per annum, requires monthly payments of
principal and interest of $23,354 and matures in June 2009. The $1.0 million
purchase money financing bears interest at 8.3% per annum, requires monthly
payments of principal and interest of $9,731 and matures in June 2002. The
Trust paid a real estate brokerage commission of $148,000 to Carmel Realty and
an acquisition fee of $43,000 to BCM.

Also in June 1997, the Trust purchased the Stacy Road land, 163 acres of
undeveloped land in Allen, Texas, for $2.5 million. The Trust paid $800,000 in
cash and obtained new mortgage financing of $1.7 million. The mortgage bears
interest at 9.5% per annum, requires monthly payments of interest only and
matures in April 2000. The Trust paid a real estate brokerage commission of
$96,000 to Carmel Realty and an acquisition fee of $25,000 to BCM.

Further in June 1997, the Trust refinanced the mortgage debt secured by the
208,386 sq. ft. Northgate Distribution Center in Marietta, Georgia in the
amount of $4.7 million. The Trust received net cash of $1.4 million after
paying off $3.0 million in existing mortgage debt, the funding of escrows and
the payment of various closing costs. The new mortgage bears interest at 8.82%
per annum, requires monthly payments of principal and interest of $38,947 and
matures in July 2007. The Trust paid BCM a mortgage brokerage and equity
financing fee of $47,000.

In July 1997, the Trust purchased Durham Centre, a 207,171 sq. ft. office
building in Durham, North Carolina, for $20.5 million. The Trust paid $5.7
million in cash and obtained new mortgage financing of $14.8 million. The
mortgage bears interest at 9.8% per annum, requires monthly payments of
principal and interest of $132,407 and matures in July 2000. The Trust paid a
real estate brokerage commission of $428,000 to Carmel Realty and a $205,000
acquisition fee to BCM. The loan is recourse to the Trust.

Also in July 1997, the Trust refinanced the mortgage debt secured by the 301
unit Heritage on the River Apartments in Jacksonville, Florida in the amount of
$8.0 million. The Trust received net cash of $1.0 million after paying off $6.5
million in existing mortgage debt, the funding of escrows and the payment of
various closing costs. The new mortgage bears interest at 8.125% per annum,
requires monthly payments of principal and interest of $59,400 and matures in
August 2007. The Trust paid BCM a mortgage brokerage and equity refinancing fee
of $80,000.

In August 1997, the Trust purchased the McKinney 140 land, 140 acres of
undeveloped land in McKinney, Texas, for $2.6 million. The Trust paid $898,000
in cash and obtained new mortgage financing of $1.7 million. The mortgage bears
interest at 9.5% per annum, requires monthly payments of interest only and
matures in April 2000. The Trust paid a real estate brokerage commission of
$98,000 to Carmel Realty and a $26,000 acquisition fee to BCM.

Also in August 1997, the Trust purchased the Eagle Rock Apartments, a 99
unit apartment complex in Los Angeles, California, for $4.4 million. The Trust
paid $1.1 million in cash with the seller providing purchase money financing of
$3.3 million. The purchase money financing bears interest at 10.5% per annum,
requires monthly payments of interest only and matures November 30, 1998. The
Trust paid a real estate brokerage commission of $51,000 to Carmel Realty and
an acquisition fee of $44,000 to BCM.

In October 1997, the Trust purchased the Westgrove Air Plaza, a 78,326 sq.
ft. combination aircraft hangar and office building in Addison, Texas, for $2.4
million. The Trust paid $1.2 million in cash with the seller

- 110 -
<PAGE>

providing $1.2 million of purchase money financing. The purchase money
financing bears interest at a variable rate, currently 10.5% per annum,
requires monthly payments of interest only and matures in February 1999. The
Trust paid a real estate brokerage commission of $91,000 to Carmel Realty and a
$24,000 acquisition fee to BCM.

Also in October 1997, the Trust purchased the Cypresstree Apartments, a 168
unit apartment complex in Houston, Texas, for $3.2 million. The Trust paid
$550,000 in cash with the seller providing $2.6 million of purchase money
financing. The purchase money financing bears interest at 10.0% per annum,
requires monthly payments of interest only and matures in December 1998. The
Trust paid a real estate brokerage commission of $114,500 to Carmel Realty and
a $32,000 acquisition fee to BCM.

In October 1997, the Trust purchased NIRT's 40% interest in a partnership
that at the time owned four industrial warehouses, for $1.6 million in cash. In
conjunction with the purchase, the Trust obtained mortgage financing of $1.8
million secured by three of the purchased properties. The Trust received net
cash of $45,000 after the payment of various closing costs associated with the
purchase and financing. The mortgage bears interest at a variable rate,
currently 9.5% per annum, requires monthly payments of principal and interest
of $16,295 and matures in April 1999.

In December 1997, the Trust refinanced the mortgage debt secured by the 188
unit Grove Park Apartments in Plano, Texas in the amount of $4.8 million. The
Trust received net cash of $1.3 million after paying off $3.2 million in
existing mortgage debt, the funding of escrows and the payment of various
closing costs. The new mortgage bears interest at 7.32% per annum, requires
monthly payments of principal and interest of $32,600 and matures in January
2008. The Trust paid BCM a mortgage brokerage and equity refinancing fee of
$48,000.

Also in December 1997, the Trust refinanced the mortgage debt secured by the
211 unit Park at Colonnade Apartments in San Antonio, Texas in the amount of
$4.2 million. The Trust received net cash of $502,000 after paying off $3.5
million in existing mortgage debt, the funding of escrows and the payment of
various closing costs. The new mortgage bears interest at 7.32% per annum,
requires monthly payments of principal and interest of $28,900 and matures in
January 2008. The Trust paid BCM a mortgage brokerage and equity refinancing
fee of $42,000.

In January 1998, the Trust refinanced the mortgage debt secured by the
133,558 sq. ft. Promenade Shopping Center in Highlands Ranch, Colorado in the
amount of $7.7 million. The Trust received net cash of $2.1 million after
paying off $5.4 million in existing mortgage debt, the funding of escrows and
the payment of various closing costs. The new mortgage bears interest at 7.42%
per annum, requires monthly payments of principal and interest of $56,502 and
matures in January 2008. The Trust paid BCM a mortgage brokerage and equity
refinancing fee of $77,000.

Also in January 1998, the Trust purchased the McKinney 36 land, 36.4 acres
of undeveloped land in Collin County, Texas, for $2.1 million in cash. The
Trust paid a real estate brokerage commission of $82,000 to Carmel Realty and a
$21,000 acquisition fee to BCM. In April 1998, the Trust obtained mortgage
financing secured by the unencumbered McKinney 36 land in the amount of $2.1
million. The Trust received net cash of $2.0 million after the payment of
various closing costs. The mortgage bears interest at 9.25% per annum, requires
monthly payments of interest only and matures in April 2000. The Trust paid a
mortgage brokerage and equity refinancing fee of $21,000 to BCM.

In March 1998, the Trust purchased the 1010 Common Building, a 494,579
square foot office building in New Orleans, Louisiana, for $14.5 million. The
building was acquired subject to ground leases that expire from November 2029
to April 2069. The Trust paid $6.3 million in cash and obtained new mortgage
financing of $8.2 million. The lender has committed to fund an additional $3.8
million for tenant improvements. The mortgage bears interest at 9.7% per annum,
requires monthly payments of interest only and matures in April 2001. The Trust
paid a real estate brokerage commission of $337,500 to Carmel Realty and an
acquisition fee of $145,000 to BCM. In April 1998, the Trust purchased four of
the ground leases for $200,000 in cash.

- 111 -
<PAGE>

Also in March 1998, the Trust purchased the 225 Baronne Building, a 416,834
square foot office building in New Orleans, Louisiana, for $11.2 million. The
Trust paid $3.8 million in cash and obtained new mortgage financing of $7.4
million. The lender has committed to fund an additional $1.6 million for tenant
improvements. The mortgage bears interest at 9.7% per annum, requires monthly
payments of interest only and matures in April 2001. The Trust paid a real
estate brokerage commission of $288,000 to Carmel Realty and an acquisition fee
of $112,000 to BCM.

The mortgages secured by the AMOCO, 1010 Common and 225 Baronne Office
Buildings in New Orleans, Louisiana are cross-collateralized and cross
defaulted. Both the Trust and BCM have guaranteed the debt. Also, the Trust has
committed to borrow an additional $163.0 million during the period ending March
2000 from the lender. In exchange for this commitment, the lender may record
second lien mortgages on the New Orleans properties of up to $2.0 million. $1.0
million of this lien will be released upon the lender funding an additional
$63.0 million in new loans to the Trust or BCM affiliated entities, with the
remaining $1.0 million released pro rata as the remaining $100.0 million in new
loans are funded. At September 30, 1998, $156.2 million of the borrowing
commitment remained to be satisfied.

Further in March 1998, the Trust refinanced the mortgage debt secured by the
322 unit McCallum Crossing Apartments in Dallas, Texas in the amount of $8.4
million. The Trust received net cash of $1.8 million after paying off $6.3
million in existing mortgage debt and the payment of various closing costs. The
new mortgage bears interest at 7.19% per annum, requires monthly payments of
principal and interest of $56,961 and matures in April 2008. The Trust paid a
mortgage brokerage and equity refinancing fee of $84,000 to BCM.

In March 1998, the Trust sold 4050 Getwell, a 112,382 square foot industrial
warehouse in Memphis, Tennessee, for $2.1 million in cash. The Trust received
net cash of $1.2 million after paying off $793,000 in existing mortgage debt
and the payment of various closing costs. The Trust paid a real estate
brokerage commission of $81,500 to Carmel Realty. No gain or loss was
recognized.

In April 1998, the Trust purchased Fontenelle Hills, a 338 unit apartment
complex in Bellevue, Nebraska, for $12.8 million. The Trust paid $2.0 million
in cash and obtained new mortgage financing of $10.8 million. The mortgage
bears interest at 7.16% per annum, requires monthly payments of principal and
interest of $73,017 and matures in April 2008. The Trust paid a real estate
brokerage commission of $311,000 to Carmel Realty and a property acquisition
fee of $128,000 to BCM.

Also in April 1998, the Trust purchased the Whisenant land, 16.802 acres of
undeveloped land in Collin County, Texas, for $600,000 in cash. The Trust paid
a real estate brokerage commission of $24,000 to Carmel Realty and an
acquisition fee of $6,000 to BCM.

In May 1998, the Trust refinanced the mortgage debt secured by the 104 unit
Willow Wick Apartments in North Augusta, South Carolina in the amount of $2.1
million. The Trust received net cash of $1.1 million after paying off $854,000
in existing mortgage debt and the payment of various closing costs. The new
mortgage bears interest at 7.205% per annum, requires monthly payments of
principal and interest of $13,990 and matures in June 2008. The Trust paid BCM
a mortgage brokerage and equity refinancing fee of $21,000.

In July 1998, the Trust purchased the Solco Allen land, 55.725 acres of
undeveloped land in Collin County, Texas, for $1.3 million in cash. The Trust
paid a real estate brokerage commission of $53,000 to Carmel Realty and an
acquisition fee of $13,000 to BCM.

Also in July 1998, the Trust purchased the Sandison land, 100.171 acres of
undeveloped land in Collin County, Texas, for $4.7 million in cash. The Trust
paid a real estate brokerage commission of $95,000 to Carmel Realty and an
acquisition fee of $47,000 to BCM.

In conjunction with the Solco Allen and Sandison land purchases, the Trust
obtained mortgage financing in the amount of $5.2 million secured by the Solco
Allen, Sandison and the unencumbered Whisenant land, all in Collin County,
Texas. The mortgage bears interest at 9.25% per annum, requires monthly
payments of interest only and matures in April 2000.

- 112 -
<PAGE>

In August 1998, the Trust purchased the 1013 Common land, 18,000 sq. ft. of
developed land in New Orleans, Louisiana, for $582,000 in cash. The Trust paid
a real estate brokerage commission of $23,000 to Carmel Realty and an
acquisition fee of $6,000 to BCM.

In September 1998, the Trust sold the 113,638 sq. ft. Rio Pinar Shopping
Center in Orlando, Florida, for $8.8 million in cash. The Trust received $3.1
million in cash after paying off $5.1 million in existing mortgage debt and the
payment of various closing costs. The Trust paid a real estate brokerage
commission of $246,000 to Carmel Realty. A gain of $478,000 was recognized.

During 1998, the Trust expended $636,000 to rebuild an industrial warehouse
in Atlanta, Georgia that had been destroyed by fire in 1996. Construction was
completed in the third quarter of 1998.

Properties Held for Sale. Set forth below are the Trust's properties held
for sale, which were primarily obtained through foreclosure, and the monthly
rental rate for apartments and the average annual rental rate for commercial
properties and occupancy thereof at December 31, 1997, 1996, 1995, 1994 and
1993:

RENT PER SQUARE FOOT OCCUPANCY %
- --------------------------------------------------------------------------------

</TABLE>

In April 1997, the Trust sold Tollhill West, a 159,546 square foot office
building in Dallas, Texas, for $14.8 million in cash. The Trust received net
cash of $9.0 million after paying off $5.0 million in existing mortgage debt
and the payment of various closing costs. The Trust paid Carmel Realty a real
estate brokerage commission of $244,000. A gain of $5.4 million was recognized.

In May 1997, the Trust sold 2626 Cole, a 119,632 square foot office building
in Dallas, Texas, for $11.0 million in cash. The Trust received net cash of
$4.2 million after paying off $6.5 million in existing mortgage debt and the
payment of various closing costs. The Trust paid Carmel Realty a real estate
brokerage commission of $280,000. A gain of $1.4 million was recognized.

- 113 -
<PAGE>

In August 1997, the Trust sold Builders Square, a 115,492 square foot
shopping center in St. Paul, Minnesota, for $2.4 million in cash. The Trust
received net cash of $1.5 million after paying off $873,000 in existing
mortgage debt and the payment of various closing costs. The Trust paid a real
estate brokerage commission of $92,000 to Carmel Realty. A loss of $245,000 was
recognized.

In October 1997, the Trust sold Northpoint Central, a 176,043 square foot
office building in Houston, Texas, for $11.0 million in cash. The Trust
received net cash of $4.7 million after paying off $5.8 million in existing
mortgage debt and the payment of various closing costs. The Trust paid a real
estate brokerage commission of $285,000 to Carmel Realty. A gain of $1.4
million was recognized.

In December 1997, the Trust sold .2 acres of the Northwest Crossing land
parcel in Houston, Texas, for $72,000 in cash. No gain or loss was recognized.

In June 1997, the Trust refinanced the mortgage debt secured by the 353 unit
Edgewood Apartments in Lansing, Illinois in the amount of $9.4 million. The
Trust received net cash of $858,000 after paying off $8.0 million in existing
mortgage debt, the funding of escrows and the payment of various closing costs.
The new mortgage bore interest at 7.96% per annum, required monthly payments of
principal and interest of $68,529 and matured in July 2007. The Trust paid BCM
a mortgage brokerage and equity refinancing fee of $94,000. In January 1998,
the Trust sold the apartment complex, for $12.1 million in cash. The Trust
received net cash of $2.3 million after paying off $9.3 million in existing
mortgage debt and the payment of various closing costs. The Trust paid a real
estate brokerage commission of $302,000 to Carmel Realty. A gain of $5.6
million was recognized.

In May 1998, the Trust sold the Pinemont Building, a 19,685 square foot
office building in Houston, Texas, for $570,000. The Trust received net cash of
$57,000 and provided $467,000 of seller financing in the form of a wraparound
mortgage note. The note bears interest at 10.4% per annum, requires monthly
payments of principal and interest of $6,281 and matures in July 2008. A loss
of $154,000 was recognized.

The parcels of unimproved land listed above were each obtained through
foreclosure. Two were obtained through foreclosure of a mortgage note secured
primarily by office buildings. The third and largest, the Round Mountain
parcel, was intended to be developed in 1983 when the Trust funded the mortgage
loan secured by the land.

The Trust intends to hold these parcels of unimproved land until the market
conditions in the areas in which the properties are located improve, at which
time the Trust intends to offer the properties for sale.

Partnership Properties. The Trust, in partnership with NIRT, owns Sacramento
Nine ("SAC 9") which in turn owns two office buildings. The Trust has a 30%
general partner interest in the partnership. The Trust accounts for its
investment in the partnership using the equity method. Set forth below are the
properties owned by SAC 9 and the average annual rental rate and occupancy
thereof at December 31, 1997, 1996 and 1995:

RENT PER SQUARE FOOT OCCUPANCY %
- --------------------------------------------------------------------------------

</TABLE>

- 114 -
<PAGE>

The Trust and NIRT were, until October 1997, the partners in a joint venture
partnership in which the Trust had a 60% partnership interest. At December 31,
1996, the partnership owned 5 industrial warehouses. In August 1997, the
partnership sold one of the industrial warehouses for $60,000 in cash, of which
the Trust's equity share was $36,000. The partnership recognized a loss of
$82,000 on the sale, of which the Trust's equity share was $49,000.

MORTGAGE LOANS. In addition to real estate, a portion of the Trust's assets
are invested in mortgage notes receivable, principally those secured by income-
producing real estate. The Trust expects that the percentage of its assets
invested in mortgage loans will continue to decrease, as it is not actively
seeking to fund or acquire mortgage loans. It may, however, in selective
instances, originate mortgage loans or it may provide purchase money financing
in conjunction with a property sale. The Trust intends to service and may
either hold for investment or sell any or all of the mortgage notes currently
in its portfolio. The Trust's mortgage notes receivable consist of first
mortgage, wraparound and junior mortgage loans.

Types of Mortgage Activity. The Trust has originated its own mortgage loans
as well as acquired existing mortgage notes either directly from builders,
developers or property owners, or through mortgage banking firms, commercial
banks or other qualified brokers. The Trust is generally not considering new
mortgage lending, except in special circumstances or in connection with
purchase money financing offered to facilitate the sale of Trust properties.
BCM, in its capacity as a mortgage servicer, services the Trust's mortgage
notes.

Types of Properties Subject to Mortgages. The properties securing the
Trust's mortgage notes receivable portfolio at September 30, 1998, consisted of
office buildings, apartments and a building housing a health club. To the
extent that the Declaration of Trust does not control such matters, the Trust's
Board of Trustees may alter the types of properties subject to mortgage loans
in which the Trust invests without a vote of the Trust's shareholders. In
addition to restricting the types of collateral and priority of mortgage loans
in which the Trust may invest, the Declaration of Trust imposes certain
restrictions on transactions with related parties.

At September 30, 1998, the Trust's mortgage notes receivable portfolio
included six mortgage loans with an aggregate outstanding balance of $4.9
million secured by income-producing real estate located in the Midwest,
Southeast and Southwest regions. At September 30, 1998, less than 1% of the
Trust's assets were invested in mortgage notes receivable.

The following table sets forth the percentages (based on the outstanding
mortgage note receivable balance), by both property type and geographic region,
of the properties that serve as collateral for the Trust's outstanding mortgage
notes receivable portfolio at September 30, 1998. The table does not include
the mortgage notes secured by single-family residences discussed in the
preceding paragraph. See Schedule IV to the Consolidated Financial Statements
for further details of the Trust's mortgage notes receivable portfolio.

<TABLE>
<CAPTION>
COMMERCIAL
REGION APARTMENTS PROPERTIES TOTAL
------ ---------- ---------- -----
<S> <C> <C> <C>
Southeast 10.8% 47.6% 58.7%
Southwest - 36.4 36.4
Midwest 4.5 - 4.9
---- ---- -----
15.3% 84.0% 100.0%
</TABLE>

A summary of the activity in the Trust's mortgage notes receivable portfolio
during 1997 and first nine months of 1998 is as follows:

<TABLE>
<S> <C>
Loans in mortgage notes receivable portfolio at January 1, 1997 16
Loan from sale of property 1
Loans paid in full (6)
Loans sold (5)
---
Loans in mortgage notes receivable portfolio at September 30, 1998 6
===
</TABLE>

- 115 -
<PAGE>

First Mortgage Loans. The Trust has invested in first mortgage notes, with
either short, medium or long-term maturities. First mortgage loans generally
provide for level periodic payments of principal and interest sufficient to
substantially repay the loan prior to maturity, but may involve interest-only
payments or moderate amortization of principal and a "balloon" principal
payment at maturity. With respect to first mortgage loans, the Trust's policy
is to require that the borrower provide a mortgagee's title policy or an
acceptable legal title opinion as to the validity and the priority of the
mortgage lien over all other obligations, except liens arising from unpaid
property taxes and other exceptions normally allowed by first mortgage lenders
in the relevant area. The Trust may grant to other lenders participations in
first mortgage loans originated by the Trust.

The following discussion briefly describes the events that affected
previously funded first mortgage loans during 1997 and the first nine months of
1998.

At December 31, 1997, one of the Trust's mortgage notes receivable with a
principal balance of $700,000 was in default. The note matured in July 1993.
The Trust has ceased to receive partial interest payments from the borrower.
The Trust is evaluating its options with respect to foreclosure of the
collateral property and the Trust does not anticipate incurring a loss beyond
the established reserve.

One of the Trust's mortgage notes receivable with a principal balance of
$1.4 million, matured in November 1995. In February 1997, the Trust received a
payment of $470,000 from the borrower, $305,000 being applied against accrued
but unpaid interest and $165,000 being applied to reduce the principal balance
of the note. In September 1997, the Trust received $1.4 million in full payment
of principal and all accrued but unpaid interest.

As discussed above in "Real Estate," ten of the Trust's mortgage notes
receivable, with a combined principal balance, at the time, of $2.8 million
were pledged as additional collateral on a $4.0 million loan, primarily secured
by the AMOCO Building. In June, August and November 1997, three of the mortgage
notes receivable, with a combined principal balance of $1.3 million, were paid
in full. Such payments were remitted to the lender as a paydown of the AMOCO
mortgage. In March 1998, the AMOCO mortgage was refinanced and the collateral
loans were released.

In June 1997, the Trust obtained financing in the amount of $1.4 million
secured by the mortgage note receivable secured by the Cypress Creek Office
Building in Fort Lauderdale, Florida. The financing bears interest at a
variable rate, currently 9.0% per annum, requires monthly principal and
interest payments of $14,126 and matures in June 2009. The Trust paid a
mortgage brokerage and equity refinancing fee of $14,000 to BCM.

In April 1998, the Trust sold five mortgage notes secured by single-family
residences in Arizona and Hawaii for $319,000 in cash. The Trust received net
cash of $304,000 after the payment of various closing costs. No gain or loss
was recognized.

Wraparound Mortgage Loans. The Trust has invested in wraparound mortgage
loans, sometimes called all-inclusive loans, made on real estate subject to
prior mortgage indebtedness. A wraparound mortgage loan is a mortgage loan
having an original principal amount equal to the outstanding balance under the
prior existing mortgage loan(s) plus the amount actually advanced under the
wraparound mortgage loan.

Wraparound mortgage loans may provide for full, partial or no amortization
of principal. The Trust's policy is to make wraparound mortgage loans in
amounts and on properties as to which it would otherwise make first mortgage
loans.

The following discussion describes a wraparound mortgage loan funded in
1998.

As discussed above in "Real Estate," in May 1998, the Trust sold the
Pinemont Building for $570,000. The Trust received net cash of $57,000 and
provided $467,000 of seller financing in the form of a wraparound mortgage
note. The note bears interest at 10.4% per annum, requires monthly payments of
principal and interest of $6,281 and matures in July 2008.

- 116 -
<PAGE>

Junior Mortgage Loans. The Trust has invested in junior mortgage loans. Such
loans are secured by mortgages that are subordinate to one or more prior liens
either on the fee or a leasehold interest in real estate. Recourse on such
loans ordinarily includes the real estate on which the loan is made, other
collateral and personal guarantees by the borrower. The Trust's Declaration of
Trust restricts investment in junior mortgage loans, excluding wraparound
mortgage loans, to not more than 10% of the Trust's assets. At September 30,
1998, less than 1% of the Trust's assets were invested in junior mortgage
loans.

Other. In July 1996, the Trust agreed to fund up to $500,000 on a promissory
note secured by a contract to purchase land in Frisco, Texas. At December 31,
1996, the Trust had funded the entire $500,000. The note bore interest at 13%
per annum and all accrued interest and principal were due at the note's
December 31, 1996 maturity date. The note's maturity date was subsequently
extended. The note and all accrued but unpaid interest was paid in full in June
1997.

EQUITY INVESTMENTS IN REAL ESTATE ENTITIES. In September 1990, the Trust's
Board of Trustees authorized the purchase of up to $2.0 million of the common
stock of ART through negotiated or open market transactions. The executive
officers of the Trust also serve as executive officers of ART and BCM. BCM, the
Trust's advisor, also serves as advisor to ART. At November 30, 1998, ART owned
approximately 40.9% of the Trust's outstanding shares of beneficial interest.
At November 30, 1998, the Trust owned 820,850 shares of ART's common stock,
approximately 7.6% of ART's outstanding common shares, which the Trust
purchased in open market transactions in 1990 and 1991, at a total cost to the
Trust of $1.6 million. The ART common stock owned by the Trust is considered to
be available for sale and accordingly, is carried at fair value defined as the
period end closing market value. At November 30, 1998, the market value of the
ART common stock was $12.9 million.

In December 1990, the Trust's Board of Trustees authorized the purchase of
up to $1.0 million of the shares of common stock of TCI through negotiated or
open market transactions. The Trustees of the Trust serve as Directors of TCI
and the executive officers of the Trust also serve as executive officers of
TCI. BCM, the Trust's advisor, also serves as advisor to TCI. At November 30,
1998, the Trust owned 80,261 shares of TCI common stock, approximately 2.1% of
the outstanding shares of TCI common stock, which the Trust purchased in open
market transactions in 1990 and 1991 at a total cost of to the Trust of
$235,000. The Trust's investment in TCI is considered to be available for sale
and is carried at fair value. At November 30, 1998, the market value of the
Trust's investment in TCI common stock was $978,000.

CERTAIN FACTORS ASSOCIATED WITH REAL ESTATE AND RELATED INVESTMENTS

The Trust is subject to all the risks incident to ownership of real estate
and interests therein, many of which relate to the general illiquidity of real
estate investments. These risks include, but are not limited to, changes in
general or local economic conditions, changes in interest rates and
availability of permanent mortgage financing that may render the acquisition,
sale or refinancing of a property difficult or unattractive and that may make
debt service burdensome, changes in real estate and zoning laws, increases in
real estate taxes, federal or local economic or rent controls, floods,
earthquakes, hurricanes and other acts of God and other factors beyond the
control of the Trust's management of the advisor. Also, the illiquidity of real
estate investments may impair the ability of the Trust to respond promptly to
changed circumstances. The Trust's management believes that such risks are
partially mitigated by the diversification by geographical location and
property type of the Trust's real estate and mortgage notes receivable
portfolios. However, to the extent property acquisitions are concentrated in
any particular geographic region or property type, the advantages of
diversification may be mitigated.

METHOD OF OPERATING AND FINANCING

The Declaration of Trust has permitted the Trust to acquire real estate
investments for cash, for other property, through issuing shares, notes,
debentures, bonds or other obligations of the Trust, including borrowing

- 117 -
<PAGE>

money, subject to the following restrictions. Under the Declaration of Trust,
upon and after giving effect to any proposed borrowing, the amount of
outstanding indebtedness of the Trust may not exceed 300% of the net asset
value of the Trust. The Declaration of Trust does not limit the number or
amount of mortgages which can be placed on any one of the Trust's real estate
investments. Apart from the aforementioned restrictions, the Trustees may alter
the Trust's method of operating and financing without a vote of shareholders.
TCI's Articles of Incorporation impose no limitations either on borrowing or on
the number or amount of mortgages which can be placed on any one of TCI's real
estate investments. See "Proposed Incorporation Procedure and Merger --
Business Activities after Incorporation Procedure and Merger".

OFFICERS

The following persons currently serve as executive officers of the Trust and
also serve as executive officers of TCI: Randall M. Paulson, President, Karl L.
Blaha, Executive Vice President -- Commercial Asset Management; Bruce A.
Endendyk, Executive Vice President; Steven K. Johnson, Executive Vice
President -- Residential Asset Management; and Thomas A. Holland, Executive
Vice President and Chief Financial Officer. Their positions with the Trust are
not subject to a vote of shareholders.

Although not executive officers of the Trust, the following persons
currently serve as officers of the Trust and also serve as officers of TCI:
Robert A. Waldman, Senior Vice President and General Counsel, and Drew D.
Potera, Vice President and Treasurer. Their positions with the Trust are not
subject to a vote of shareholders.

THE TRUST ADVISOR

Although the Board of Trustees is directly responsible for managing the
affairs of the Trust and for setting the policies which guide the Trust, the
day-to-day operations of the Trust are performed by BCM, a contractual advisor
under the supervision of the Board of Trustees. The stated duties of the
advisor include, among other things, locating, investigating, evaluating and
recommending real estate and mortgage note investment and sales opportunities
for the Trust as well as financing and refinancing sources for the Trust. The
advisor also serves as a consultant to the Board of Trustees in connection with
the business plan and investment policy decisions.

BCM has served as the Trust's advisor since March 1989. BCM is a corporation
of which Messrs. Paulson, Blaha, Endendyk, Johnson and Holland serve as
executive officers. BCM is owned by a trust for the benefit of the children of
Gene E. Phillips. Prior to December 22, 1989, Mr. Phillips served as a director
of BCM, and until September 1, 1992, as Chief Executive Officer of BCM. Mr.
Phillips serves as a representative of his children's trust which owns BCM and,
in such capacity, has substantial contact with the management of BCM and input
with respect to its performance of advisory services to the Trust.

BCM has been providing advisory services to the Trust since March 29, 1989.
Renewal of the Trust Advisory Agreement was approved at the annual meeting of
the Trust's shareholders held on May 8, 1997. The current Trust Advisory
Agreement was executed on October 15, 1998. BCM also serves as advisor to IORI
and TCI. The Trustees of the Trust are also Directors of IORI and TCI and the
executive officers of the Trust are also executive officers of IORI and TCI.
Mr. Phillips serves as a general partner of SAMLP, which, until December 18,
1998, served as the general partner of NRLP and NOLP, the operating partnership
of NRLP. BCM performs certain administrative functions for NRLP and NOLP on a
cost-reimbursement basis. BCM also serves as advisor to ART. Mr. Phillips
served as a director and Chairman of the Board of ART and President and sole
director of SAMI, which is the managing general partner of SAMLP. The executive
officers of the Trust are also executive officers of ART, NMC and SAMI.

As of November 30, 1998, ART owned approximately 40.9% and BCM owned
approximately 15.1% of the Trust's outstanding shares of beneficial interest,
and BCM owned approximately 53.1% and the Trust owned approximately 7.6% of
ART's outstanding shares of common stock.

- 118 -
<PAGE>

PROPERTY MANAGEMENT

Since February 1, 1990, affiliates of BCM have provided property management
services to the Trust. Currently, Carmel Ltd. provides such property management
services. Carmel Ltd. subcontracts with other entities for the provision of the
property-level management services to the Trust. The general partner of Carmel
Ltd. is BCM. The limited partners of Carmel Ltd. are (1) First Equity, which is
50% owned by BCM, (2) Gene E. Phillips and (3) a trust for the benefit of the
children of Mr. Phillips. Carmel Ltd. subcontracts the property-level
management and leasing of eighteen of the Trust's commercial properties to
Carmel Realty, which is a company owned by First Equity. Carmel Realty is
entitled to receive property and construction management fees and leasing
commissions in accordance with the terms of its property-level management
agreement with Carmel Ltd.

REAL ESTATE BROKERAGE

Since December 1, 1992, Carmel Realty has been engaged, on a non-exclusive
basis, to provide brokerage services for the Trust. Carmel Realty is entitled
to receive a commission for property acquisitions and sales by the Trust in
accordance with the following sliding scale of total fees to be paid by the
Trust: (1) maximum fee of 5% on the first $2.0 million of any purchase or sale
transaction of which no more than 4% would be paid to Carmel Realty or
affiliates; (2) maximum fee of 4% on transaction amounts between $2.0 million
and $5.0 million of which no more than 3% would be paid to Carmel Realty or
affiliates; (3) maximum fee of 3% on transaction amounts between $5.0 million
and $10.0 million of which no more than 2% would be paid to Carmel Realty or
affiliates; and (4) maximum fee of 2% on transaction amounts in excess of $10.0
million of which no more than 1 1/2% would be paid to Carmel Realty or
affiliates.

If the Incorporation Procedure and the Merger are approved, the brokerage
agreement between Carmel Realty and the Trust will not be amended and will
continue in full force and effect with TCI, as successor to the Trust, being
substituted for the Trust.

THE TRUST ADVISORY AGREEMENT

BCM has served as advisor to the Trust since March 28, 1989. The current
Trust Advisory Agreement was entered into effective October 15, 1998. Renewals
of the Trust Advisory Agreement require the approval of the Trust's
shareholders.

Under the Trust Advisory Agreement, BCM is required to formulate and submit
annually for approval by the Board of Trustees a budget and business plan for
the Trust containing a twelve-month forecast of operations and cash flow, a
general plan for asset sales and acquisitions, lending, foreclosure and
borrowing activity, and other investments. BCM is required to report quarterly
to the Board of Trustees on the Trust's performance against the business plan.
In addition, all transactions or investments by the Trust require prior
approval by the Board of Trustees unless they are explicitly provided for in
the approved business plan or are made pursuant to authority expressly
delegated to BCM by the Board of Trustees.

The Trust Advisory Agreement also requires prior approval of the Board of
Trustees for the retention of all consultants and third party professionals,
other than legal counsel. The Trust Advisory Agreement provides that BCM shall
be deemed to be in a fiduciary relationship to the Trust's shareholders;
contains a broad standard governing BCM's liability for losses by the Trust;
and contains guidelines for BCM's allocation of investment opportunities as
among itself, the Trust and other entities it advises.

The Trust Advisory Agreement provides for BCM to be responsible for the day-
to-day operations of the Trust and to receive an advisory fee comprised of a
gross asset fee of .0625% per month (.75% per annum) of the average of the
gross asset value of the Trust (total assets less allowance for amortization,
depreciation or depletion and valuation reserves) and an annual net income fee
equal to 7.5% per annum of the Trust's net income.

- 119 -
<PAGE>

The Trust Advisory Agreement also provides for BCM to receive an annual
incentive sales fee equal to 10% of the amount, if any, by which the aggregate
sales consideration for all real estate sold by the Trust during such fiscal
year exceeds the sum of: (1) the cost of each such property as originally
recorded in the Trust's books for tax purposes (without deduction for
depreciation, amortization or reserve for losses), (2) capital improvements
made to such assets during the period owned by the Trust and (3) all closing
costs (including real estate commissions) incurred in the sale of such
property; provided, however, no incentive fee shall be paid unless (a) such
real estate sold in such fiscal year, in the aggregate, has produced an 8%
simple annual return on the Trust's net investment including capital
improvements, calculated over the Trust's holding period before depreciation
and inclusive of operating income and sales consideration and (b) the aggregate
net operating income from all real estate owned by the Trust for each of the
prior and current fiscal years shall be at least 5% higher in the current
fiscal year than in the prior fiscal year.

Additionally, pursuant to the Trust Advisory Agreement, BCM or an affiliate
of BCM is to receive an acquisition commission for supervising the acquisition,
purchase or long-term lease of real estate for the Trust equal to the lesser of
(1) up to 1% of the cost of acquisition, inclusive of commissions, if any, paid
to nonaffiliated brokers or (2) the compensation customarily charged in arm's-
length transactions by others rendering similar property acquisition services
as an ongoing public activity in the same geographical location and for
comparable property; provided that the aggregate purchase price of each
property (including acquisition fees and all real estate brokerage commissions)
may not exceed such property's appraised value at acquisition.

The Trust Advisory Agreement requires BCM or any affiliate of BCM to pay to
the Trust one-half of any compensation received from third parties with respect
to the origination, placement or brokerage of any loan made by the Trust,
provided, however, that the compensation retained by BCM or any affiliate of
BCM shall not exceed the lesser of (1) 2% of the amount of the loan committed
by the Trust or (2) a loan brokerage and commitment fee which is reasonable and
fair under the circumstances.

The Trust Advisory Agreement also provides that BCM or an affiliate of BCM
is to receive a mortgage or loan acquisition fee with respect to the
acquisition or purchase of any existing mortgage loan from an unaffiliated
party by the Trust equal to the lesser of (i) 1% of the amount of the loan
purchased or (ii) a loan brokerage or commitment fee which is reasonable and
fair under the circumstances. Such fee will not be paid in connection with the
origination or funding by the Trust of any mortgage loan.

Under the Trust Advisory Agreement, BCM or an affiliate of BCM is also to
receive a mortgage brokerage and equity refinancing fee for obtaining loans to
the Trust or refinancing on Trust properties equal to the lesser of (i) 1% of
the amount of the loan or the amount refinanced or (ii) a brokerage or
refinancing fee that is reasonable and fair under the circumstances; provided,
however, that no such fee shall be paid on loans from BCM or an affiliate of
BCM without the approval of the Board of Trustees. No fee shall be paid on loan
extensions.

Under the Trust Advisory Agreement, BCM is to receive reimbursement of
certain expenses incurred by it in the performance of advisory services to the
Trust.

Under the Trust Advisory Agreement (as required by the Declaration of
Trust), all or a portion of the annual advisory fee must be refunded by the
advisor to the Trust if the Operating Expenses of the Trust (as defined in the
Declaration of Trust) exceed certain limits specified in the Declaration of
Trust based on the book value, net asset value and net income of the Trust
during such fiscal year. The effect of this limitation was to require that BCM
refund $606,000 of the annual advisory fee for 1997.

Additionally, if the Trust were to request that BCM render services to the
Trust other than those required by the Trust Advisory Agreement, BCM or an
affiliate of BCM will be separately compensated for such additional services on
terms to be agreed upon from time to time. The Trust has hired Carmel Ltd., an
affiliate of BCM, to provide property management for the Trust's properties,
and the Trust has engaged Carmel Realty, also an affiliate of BCM, on a non-
exclusive basis, to provide brokerage services for the Trust.

- 120 -
<PAGE>

BCM may only assign the Trust Advisory Agreement with the prior consent of
the Trust.

As discussed above and as mandated by the Declaration of Trust, the current
Trust Advisory Agreement requires that a portion of the annual advisory fee be
refunded to the Trust if operating expenses exceed certain limits. Although
TCI's Articles of Incorporation do not require such a limitation, such a
provision is included in the TCI Advisory Agreement.

The directors and principal officers of BCM are set forth above under
"Business and Properties of TCI -- The TCI Advisory Agreement".

INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS

The Trust is involved in the Olive Litigation, described more fully above
under "Business and Properties of TCI -- Involvement in Certain Legal
Proceedings". The terms and conditions of the Olive Modification and the Olive
Amendment apply equally to the Trust and require, among other things, the
following: (1) the unanimous approval of the Board of Trustees to related party
transactions (which are, generally, to be discouraged and may only be entered
into in exceptional circumstances and after a determination by the Board of
Trustees that the transaction is in the best interests of the Trust and that no
other opportunity exists that is as good as the opportunity presented by such
transaction), but does not apply to direct contractual agreements for services
between the Trust, BCM or one of its affiliates (including the Trust Advisory
Agreement); and (2) the addition of four new unaffiliated members to the
Trust's Board of Trustees.

As described more fully above under "Business and Properties of TCI --
Involvement in Certain Legal Proceedings", all shares of the Trust owned by
Gene E. Phillips or any of his affiliates shall be voted at all shareholder
meetings of the Trust held until April 29, 1999 in favor of all new members of
the Board of Trustees added under the Olive Amendment. The Olive Amendment also
requires that, until April, 28, 1999, all shares of the Trust owned by Mr.
Phillips or his affiliates in excess of forty percent (40%) of the Trust's
outstanding shares shall be voted in proportion to the votes cast by all non-
affiliated shareholders of the Trust.

In accordance with the Olive Amendment, Richard W. Douglas, Larry E. Harley
and R. Douglas Leonhard were added to the Board of Trustees in January 1998 and
Murray Shaw was added to the Board of Trustees in February 1998.

CERTAIN BUSINESS RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

CERTAIN BUSINESS RELATIONSHIPS. In February 1989, the Board of Trustees
voted to retain BCM as the Trust's advisor. The Trust's President and Executive
Vice Presidents serve also as executive officers of BCM.

Since February 1, 1991, affiliates of BCM have provided property management
services to the Trust. Currently, Carmel Ltd. provides such property management
services. The general partner of Carmel Ltd. is BCM. The limited partners of
Carmel Ltd. are (1) First Equity, which is 50% owned by BCM, (2) Mr. Phillips
and (3) a trust for the benefit of the children of Mr. Phillips. Carmel Ltd.
subcontracts the property-level management and leasing of eighteen of the
Trust's commercial properties to Carmel Realty, which is a company owned by
First Equity.

Prior to December 1, 1992, affiliates of BCM provided brokerage services to
the Trust and received brokerage commissions in accordance with the Trust
Advisory Agreement. Since December 1, 1992, the Trust has engaged, on a non-
exclusive basis, Carmel Realty to perform brokerage services to the Trust.
Carmel Realty is a company owned by First Equity.

The Trustees and executive officers of the Trust also serve as directors and
executive officers of IORI and TCI. The Trustees owe fiduciary duties to such
entities as well as to the Trust under applicable law. IORI and TCI have the
same relationship with BCM as the Trust. Mr. Phillips is a general partner of
SAMLP, which,

- 121 -
<PAGE>

until December 18, 1998, served as the general partner of NRLP and NOLP. BCM
performs certain administrative functions for NRLP and NOLP on a cost-
reimbursement basis. BCM also serves as advisor to ART. Mr. Phillips served as
Chairman of the Board and director of ART until November 16, 1992. Messrs.
Paulson, Blaha, Endendyk, Johnson and Holland serve as executive officers of
ART, NMC and SAMI.

From April 1992 to December 31, 1992, Ted P. Stokely, a Trustee of the
Trust, was employed as a paid consultant and since January 1, 1993 as a part-
time unpaid consultant for Eldercare, a nonprofit corporation engaged in the
acquisition of low income and elderly housing. Eldercare has a revolving loan
commitment from SWI, of which Mr. Phillips is the sole shareholder. Eldercare
filed for bankruptcy protection in July 1993 and was dismissed from bankruptcy
on October 12, 1994. Eldercare filed again for bankruptcy protection in May
1995, and was reorganized in bankruptcy in February 1996.

RELATED PARTY TRANSACTIONS. Historically, the Trust has engaged in and may
continue to engage in business transactions, including real estate
partnerships, with related parties. The Trust's management believes that all of
the related party transactions represented the best investments available at
the time and were at least as advantageous to the Trust as investments that
could have been obtained from unrelated third parties.

The Trust is engaged with NIRT in the Sacramento Nine partnership and, until
October 1997, was engaged with NIRT in the Indcon, L.P. partnership.

In September 1990, the Board of Trustees authorized the purchase of up to
$2.0 million of the common shares of ART through negotiated or open market
transactions. The officers of the Trust also serve as officers of ART. BCM, the
Trust's advisor, also serves as advisor to ART and at November 30, 1998, ART
owned approximately 40.9% of the Trust's outstanding shares of beneficial
interest. At November 30, 1998, the Trust owned 820,850 shares of ART common
stock which the Trust had purchased in open market transactions in 1990 and
1991 at a total cost to the Trust of $1.6 million. At November 30, 1998, the
market value of the ART shares was $12.9 million.

In December 1990, the Board of Trustees authorized the purchase of up to
$1.0 million of the shares of TCI common stock through negotiated or open
market transactions. The Trustees of the Trust also serve as Directors of TCI.
The officers of the Trust also serve as officers of TCI. BCM, the Trust's
advisor, also serves as advisor to TCI. At November 30, 1998, the Trust owned
80,261 shares of TCI common stock which the Trust had purchased in open market
transactions in 1990 and 1991 at a total cost to the Trust of $235,000. At
December 31, 1997, the market value of the TCI common stock was $978,000.

In 1997, the Trust paid BCM and its affiliates $2.5 million in advisory, net
income and incentive sales fees, $3.3 million in real estate brokerage
commissions, $383,000 in mortgage brokerage and equity refinancing fees and
$1.8 million in property and construction management fees and leasing
commissions (net of property management fees paid to subcontractors, other than
Carmel Realty). In addition, also as provided in the Trust Advisory Agreement,
BCM received cost reimbursements from the Trust of $1.1 million in 1997. Under
the Trust Advisory Agreement (as required by the Trust's Declaration of Trust),
all or a portion of the annual advisory fee must be refunded by the advisor to
the Trust if the Operating Expenses of the Trust (as defined in the Trust's
Declaration of Trust) exceed certain limits specified in the Declaration of
Trust. The effect of this limitation was to require that BCM refund $606,000 of
the annual advisory fee for 1997.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS. The following table sets
forth the ownership of the Trust's shares of beneficial interest, both
beneficially and of record, both individually and in the aggregate, for those
persons or entities known by the Trust to be beneficial owners of more than 5%
of the Trust shares of beneficial interest as of the close of business on
November 30, 1998.

- 122 -
<PAGE>

<TABLE>
<CAPTION>
AMOUNT OF NATURE OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS(1)
------------------------ -------------------- -------------------
<S> <C> <C>
American Realty Trust, Inc. 1,642,695 40.9%
10670 N. Central Expressway
Suite 300
Dallas, Texas 75231
Basic Capital Management, Inc. 606,040 15.1%
10670 N. Central Expressway
Suite 600
Dallas, Texas 75231
- --------
(1) Percentages are based upon 4,017,150 shares of beneficial interest
outstanding at November 30, 1998.

SECURITY OWNERSHIP OF MANAGEMENT. The following table sets forth the
ownership of the Trust's shares of beneficial interest, both beneficially and
of record, both individually and in the aggregate, for the Trustees and
executive officers of the Trust as of the close of business on November 30,
1998.

<CAPTION>
AMOUNT OF NATURE OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS(1)
------------------------ -------------------- -------------------
<S> <C> <C>
All Trustees and Executive 2,248,735(2) 56.0%
Officers as a group
(12 individuals)
</TABLE>
- --------
(1) Percentage is based upon 4,017,150 shares of beneficial interest
outstanding at November 30, 1998.
(2) Includes 1,642,695 shares owned by ART and 606,040 shares owned by BCM, of
which the executive officers of the Trust may be deemed to be beneficial
owners by virtue of their positions as executive officers of ART and BCM.
The Trust's executive officers disclaim beneficial ownership of such
shares. Each of the directors of ART may be deemed to be beneficial owners
of the shares owned by ART by virtue of their position as directors of ART.
Each of the directors of BCM may be deemed to be beneficial owners of the
shares owned by BCM by virtue of their positions as directors of BCM. The
directors of ART and BCM disclaim such beneficial ownership.

SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION

The following table summarizes selected historical consolidated financial
information of the Trust and for TCI for the nine months ended September 30,
1998 and 1997 and the last five years ended December 31, 1993 through 1997.

The historical consolidated financial information is not necessarily
indicative of TCI's future results of operations or financial condition
following the Incorporation Procedure and the Merger. The information set forth
below should be read in conjunction with "Trust Management's Discussion and
Analysis of Financial Condition and Results of Operations", the Trust's
Consolidated Financial Statements and notes thereto appearing under "Index to
Financial Statements" included in the Trust's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1998, which is incorporated by reference
herein, "TCI Management's Discussion and Analysis of Financial Condition and
Results of Operations", and TCI's Consolidated Financial Statements and notes
thereto appearing under "Index to Financial Statements" included in the TCI's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, which
is incorporated by reference herein. Results for the interim periods are not
necessarily indicative of the results for a full year.

- 123 -
<PAGE>

CONTINENTAL MORTGAGE AND EQUITY TRUST

SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
<S> <C> <C> <C> <C> <C>
EARNINGS DATA
Revenues $ 56,475 $ 45,363 $ 38,309 $ 29,741 $ 24,288
Expenses 60,647 47,799 39,982 31,803 23,460
--------- --------- --------- --------- ---------
Income (loss) from oper-
ations (4,172) (2,436) (1,673) (2,062) 828
Equity in income (loss)
of partnerships 99 228 230 98 (213)
Gain on sale of real es-
tate and marketable eq-
uity securities 8,249 10,122 - 1,131 -
Extraordinary gain - 812 - - -
--------- --------- --------- --------- ---------
Net income (loss) $ 4,176 $ 8,726 $ (1,443) $ (833) $ 615
========= ========= ========= ========= =========
EARNINGS PER SHARE DATA
Income (loss) before ex-
traordinary gain $ 1.04 $ 1.89 $ (.33) $ (.19) $ .13
Extraordinary gain - .19 - - -
--------- --------- --------- --------- ---------
Net income (loss) $ 1.04 $ 2.08 $ (.33) $ (.19) $ .13
========= ========= ========= ========= =========
Distributions per share $ .52 $ .89 $ .40 $ .40 $ .33
Weighted average shares
outstanding 4,025,794 4,199,147 4,377,165 4,379,722 4,521,384
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Notes and interest
receivable, net $ 3,629 $ 7,074 $ 5,351 $ 7,117 $ 32,129
Real estate held for
sale, net
Foreclosed 5,670 5,738 6,436 19,533 10,486
Other 5,940 - 1,268 - -
Real estate held for
investment, net 250,084 214,460 174,713 124,706 94,440
Investment in
partnerships 144 2,293 12,970 13,805 14,079
Total assets 299,370 250,010 218,568 182,839 160,462
Notes and interest
payable 199,712 160,554 135,590 98,252 74,786
Shareholders' equity 88,043 79,183 75,985 78,767 81,139
Book value per share $ 21.89 $ 19.67 $ 17.36 $ 17.99 $ 18.53
</TABLE>
- --------
Shares and per share dates have been restated for the three-for-two forward
share split effected February 15, 1996.

- 124 -
<PAGE>

<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
---------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
------------- -------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE)
<S> <C> <C>
EARNINGS DATA
Revenues $ 47,826 $ 41,359
Expenses 53,183 44,442
--------- ---------
(Loss) from operations (5,357) (3,083)
Equity in income of partnerships 108 56
Gain on sale of real estate 5,916 6,565
--------- ---------
Net Income $ 667 $ 3,538
--------- ---------
PER SHARE DATA
Net income $ .17 $ .88
--------- ---------
Weighted average shares of beneficial interest
used in computing earnings per share 4,011,072 4,026,061
========= =========
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
----------------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE)
<S> <C>
BALANCE SHEET DATA
Notes and interest receivable, net $ 3,443
Real Estate held for sale, net
Foreclosed 5,022
Other -
Real estate held for investment, net 288,814
Total assets 331,025
Notes and interest payable 234,744
Shareholders' equity 87,315
Book value per share $ 21.74
</TABLE>

- 125 -
<PAGE>

TRANSCONTINENTAL REALTY INVESTORS, INC.

SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
<S> <C> <C> <C> <C> <C>
EARNINGS DATA
Revenues $ 55,961 $ 46,878 $ 48,272 $ 37,983 $ 32,242
Expenses 65,578 56,499 58,174 47,154 42,168
---------- ---------- ---------- ---------- ----------
(Loss) from operations (9,617) (9,621) (9,902) (9,171) (9,926)
Equity in income (loss)
of investees 812 (20) (1,083) (90) (262)
Gain on sale of
partnership interests - - - 2,514 -
Gain on sale of real
estate 21,404 1,579 5,822 2,153 24
Extraordinary gain - 256 1,437 1,189 1,594
---------- ---------- ---------- ---------- ----------
Net income (loss) $ 12,599 $ (7,806) $ (3,726) $ (3,405) $ (8,570)
========== ========== ========== ========== ==========
PER SHARE DATA
Income (loss) before
extraordinary gain $ 3.22 $ (2.02) $ (1.29) $ (1.15) $ (2.52)
Extraordinary gain - .06 .36 .30 .40
========== ========== ========== ========== ==========
Net income (loss) $ 3.22 $ (1.96) $ (.93) $ (.85) $ (2.12)
========== ========== ========== ========== ==========
Dividends per share $ .28 $ .28 $ .07 $ - $ -
Weighted average common
shares outstanding 3,907,221 3,994,687 4,012,275 4,012,275 4,033,332
<CAPTION>
DECEMBER 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Notes and interest
receivable, net $ 3,947 $ 8,606 $ 10,017 $ 11,201 $ 12,447
Real estate held for
sale, net
Foreclosed 1,356 910 2,460 8,032 11,277
Other 3,630 2,089 3,415 341 596
Real estate held for
investment, net 270,245 217,410 220,249 213,445 178,857
Total assets 319,535 245,371 260,180 247,964 221,095
Notes and interest
payable 222,029 158,692 159,889 145,514 116,024
Stockholders' equity 86,533 79,359 89,184 93,177 96,582
Book value per share $ 22.25 $ 19.87 $ 22.23 $ 23.22 $ 23.95
</TABLE>
- --------
Shares and per share data have been restated for the three-for-two common stock
split effected February 15, 1996.

- 126 -
<PAGE>

<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
---------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
------------- -------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE)
<S> <C> <C>
EARNINGS DATA
Revenues $ 52,007 $ 40,488
Expenses 56,329 45,891
--------- ---------
(Loss) from operations (4,322) (5,403)
Equity in income of investees 342 680
Gain on sale of real estate 12,015 1,455
--------- ---------
Net income (loss) $ 8,035 $ (3,268)
========= =========
PER SHARE DATA
Net income (loss) $ 2.07 $ (.83)
--------- ---------
Weighted average common shares used in
computing earnings per share 3,876,505 3,910,991
========= =========
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
----------------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE)
<S> <C>
BALANCE SHEET DATA
Notes and interest receivable, net $ 1,525
Real Estate held for sale, net
Foreclosed 3,867
Other 6,524
Real estate held for investment, net 309,039
Total assets 360,103
Notes and interest payable 258,782
Stockholders' equity 92,583
Book value per share $ 23.91
</TABLE>

- 127 -
<PAGE>

TRUST MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

The Trust was formed to invest in real estate through acquisitions, leases
and partnerships and in mortgage loans, including wraparound, first, and junior
mortgage loans. The Trust was organized on August 27, 1980 and commenced
operations on December 3, 1980.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents aggregated $4.4 million at September 30, 1998,
compared with $3.1 million at December 31, 1997. The principal reasons for the
increase in cash are discussed in the paragraphs below.

The Trust's principal sources of cash have been and will continue to be
property operations, proceeds from property sales, principal payments on
mortgage notes receivable and borrowings. The Trust expects the net cash
provided by its operations and from external sources, such as property sales,
financings and refinancings, will be sufficient to meet the Trust's various
cash needs, including, but not limited to, debt service obligations,
shareholders distributions and property maintenance and improvements.

The Trust's cash flow from property operations (rents collected less
payments for expenses applicable to rental income) increased from $18.9 million
in the first nine months of 1997 to $19.4 million in the first nine months of
1998. Of this net increase, $1.1 million is the result of the Trust having
acquired five apartment complexes and six commercial properties during 1997 and
1998 and an additional $1.7 million due to increased rental and occupancy rates
primarily at the Trust's commercial properties. These increases were partially
offset by a decrease of $2.1 million due to the sale of four commercial
properties in 1997 and one apartment complex and three commercial properties in
1998. The Trust's management believes that the Trust's cash flow from property
operations will continue to increase as the Trust continues to benefit from the
properties acquired in the last three months of 1997 and first nine months of
1998.

In January 1998, the Trust sold the 353 unit Edgewood Apartments in Lansing,
Illinois, for $12.1 million in cash. The Trust received net cash of $2.3
million after paying off the then existing mortgage debt and the payment of
various closing costs.

Also in January 1998, the Trust refinanced the mortgage debt secured by the
Promenade Shopping Center in Highlands Ranch, Colorado, in the amount of $7.7
million. The Trust received net cash of $2.1 million after paying off the then
existing mortgage debt.

Further in January 1998, the Trust purchased the McKinney 36 land, 36.4
acres of undeveloped land in Collin County, Texas, for $2.1 million in cash. In
April 1998, the Trust obtained mortgage financing secured by such land in the
amount of $2.1 million. The Trust received net cash from the financing of $2.0
million.

In March 1998, the Trust purchased the 494,579 sq. ft. 1010 Common Office
Building in New Orleans, Louisiana, for $14.5 million consisting of $6.3
million in cash and mortgage financing of $8.2 million.

In March 1998, the Trust purchased the 416,834 sq. ft. 225 Baronne Office
Building in New Orleans, Louisiana, for $11.2 million consisting of $3.8
million in cash and mortgage financing of $7.4 million.

In March 1998, the Trust refinanced the mortgage debt in the amount of $15.0
million secured by the AMOCO Office Building in New Orleans, Louisiana, and by
seven mortgage notes receivable. The Trust received net cash of $10.9 million
after paying off the then existing mortgage debt.

The mortgage debt secured by the above three New Orleans Office Buildings is
cross-collateralized and cross defaulted. Both the Trust and BCM have
guaranteed repayment of the debt. The Trust committed to

- 128 -
<PAGE>

borrow an additional $163.0 million from the lender during the period ending
March 2000, of which $156.2 million of the borrowing commitment at September
30, 1998, remained to be satisfied. In exchange for this commitment, the lender
may record a second lien mortgage on the New Orleans office buildings of up to
$2.0 million. $1.0 million of this lien will be released upon the lender
funding an additional $63.0 million in new loans to the Trust or BCM affiliated
entities, with the remaining $1.0 million released pro rata as the remaining
$100 million in new loans is funded.

Also in March 1998, the Trust sold the 112,382 sq. ft. 4050 Getwell
Industrial Warehouse in Memphis, Tennessee, for $2.1 million in cash. The Trust
received net cash of $1.2 million after paying off the then existing mortgage
debt and the payment of various closing costs.

Further in March 1998, the Trust refinanced the mortgage debt secured by the
McCallum Crossing Apartments in Dallas, Texas, in the amount of $8.4 million.
The Trust received net cash of $1.8 million after paying off the then existing
mortgage debt.

In April 1998, the Trust purchased the 338 units Fontenelle Hills Apartments
in Bellevue, Nebraska, for $12.8 million, consisting of $2.0 million in cash
and mortgage financing of $10.8 million.

Also in April 1998, the Trust purchased the Whisenant land, 16.082 acres of
undeveloped land in Collin County, Texas, for $600,000 in cash.

In May 1998, the Trust refinanced the mortgage debt secured by the Willow
Wick Apartments in North Augusta, South Carolina in the amount of $2.1 million.
The Trust received net cash of $1.1 million after paying off the then existing
mortgage debt.

In July 1998, the Trust purchased the Solco Allen land, 55.725 acres of
undeveloped land in Collin County, Texas, for $1.3 million in cash.

Also in July 1998, the Trust purchased the Sandison land, 100.171 acres of
undeveloped land in Collin County, Texas, for $4.7 million in cash.

Subsequent to these purchases, the Trust obtained mortgage refinancing in
the amount of $5.2 million secured by the Solco Allen, Sandison and Whisenant
land, all in Collin County, Texas. The Trust received net cash of $4.9 million
after the payment of closing costs.

In August 1998, the Trust purchased the 1013 Common land, 18,000 sq. ft. of
developed land in New Orleans, Louisiana, for $582,000 in cash.

In December 1989, the Trust's Board of Trustees authorized the Trust to
repurchase a total of 1,465,000 of its shares of beneficial interest. The Trust
completed the authorized repurchases during the first quarter of 1998. The
Trust repurchased such shares at a total cost to the Trust of $7.8 million. In
April 1998, the Trust's Board of Trustees authorized the Trust to repurchase an
additional 200,000 of its shares of beneficial interest. No shares have been
repurchased under this authorization.

In the first nine months of 1998, the Trust paid quarterly distributions of
$.45 per share or a total of $1.8 million and sold 10,902 shares of beneficial
interest through its dividend reinvestment plan for a total of $172,000.

Management reviews the carrying values of the Trust's properties and
mortgage notes receivable at least annually and whenever events or a change in
circumstances indicate that impairment may exist. Impairment is

- 129 -
<PAGE>

considered to exist if, in the case of a property, the future cash flow from
the property (undiscounted and without interest) is less than the carrying
amount of the property. For notes receivable, impairment is considered to exist
if it is probable that all amounts due under the terms of the note will not be
collected. In those instances where impairment is found to exist, a provision
for loss is recorded by a charge against earnings. The mortgage note receivable
review includes an evaluation of the collateral property securing such note.
The property review generally includes selective property inspections,
discussions with the manager of the property and visits to selected properties
in the surrounding area and a review of the following: (1) the property's
current rents compared to market rents; (2) the property's expenses; (3) the
property's maintenance requirements; and, (4) the property's cash flow.

RESULTS OF OPERATIONS

THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998. The Trust reported a net
loss of $1.8 million and net income of $667,000 for the three and nine months
ended September 30, 1998, which includes gains on sale of real estate of
$454,000 and $5.9 million. For the three months ended September 30, 1997, the
Trust reported a net loss of $1.2 million including a $245,000 loss on the sale
of real estate. The Trust reported net income of $3.5 million for the nine
months ended September 30, 1997, which included gains on sale of real estate of
$6.8 million. Fluctuations in these and other components of the Trust's
revenues and expenses between the 1997 and 1998 periods are discussed below.

Rents increased from $14.4 million and $40.6 million for the three and nine
months ended September 30, 1997, to $16.5 million and $47.3 million for the
three and nine months ended September 30, 1998. Of these increases, $692,000
and $4.6 million is attributable to the acquisition of four apartment complexes
and eight commercial properties in 1997, and $1.5 million and $3.2 million is
attributable to the acquisition of one apartment complex and two commercial
properties in 1998. Increases of $883,000 and $3.4 million are due to increased
rental and occupancy rates at the Trust's apartment complexes and commercial
properties. These increases are partially offset by decreases of $429,000 and
$2.7 million due to the sale of four commercial properties in 1997 and
decreases of $743,000 and $2.0 million due to the sale of an apartment complex
and three commercial properties during 1998. Rents are expected to continue to
increase due to revenues from properties acquired in 1988 and higher rental and
occupancy rates.

Interest income was $263,000 and $729,000 for the three and nine months
ended September 30, 1997, compared to $168,000 and $539,000 for the three and
nine months ended September 30, 1998. These decreases are due to the sale of
five mortgage notes receivable in 1998 and the payoff of five mortgage notes
receivable in 1997, partially offset by an increase in short-term investment
income. Interest income in the fourth quarter of 1998 is expected to
approximate that of the third quarter of 1998.

Property operating expenses increased from $8.4 million and $23.6 million
for the three and nine months ended September 30, 1997, to $10.0 million and
$27.4 million for the three and nine months ended September 30, 1998. Of these
increases, $632,000 and $2.7 million is due to the acquisition of four
apartment complexes and eight commercial properties in 1997 and $1.4 million
and $2.7 million is due to the acquisitions of one apartment complex and two
commercial properties in 1998. These increases are partially offset by
decreases of $308,000 and $1.7 million due to the sale of four commercial
properties in 1997 and decreases of $482,000 and $1.0 million due to the sale
of an apartment complex and three commercial properties during 1998. Property
operating expenses are expected to continue to increase due to properties
acquired in 1998.

Interest expense increased from $4.4 million and $12.2 million for the three
and nine months ended September 30, 1997 to $6.0 million and $16.1 million for
the three and nine months ended September 30, 1998. Of these increases, $1.1
million and $3.8 million is due to interest expense recorded on mortgages
secured by 15 properties, encumbered by debt, acquired in 1997 and six
properties, encumbered by debt, acquired in 1998. An additional $740,000 and
$1.1 million is due to interest expense recorded on borrowings in 1997 and
1998, secured by mortgages on one previously unencumbered commercial property
and a note receivable in 1997 and

- 130 -
<PAGE>

three parcels of undeveloped land in 1998 and the refinancing of six existing
mortgages in 1997 and four existing mortgages in 1998 where the loan balance
was increased. These increases are partially offset by decreases of $294,000
and $1.5 million due to the sale of four commercial properties in 1997 and an
apartment complex and three commercial properties in 1998. Interest expense in
the fourth quarter of 1998 is expected to approximate that of the third quarter
of 1998.

Depreciation expense increased from $1.6 million and $4.6 million for the
three and nine months ended September 30, 1997 to $2.0 million and $6.1 million
for the three and nine months ended September 30, 1998. These increases are due
to the acquisition of four apartment complexes and eight commercial properties
in 1997 and one apartment complex and two commercial properties in 1998,
partially offset by the sale of four commercial properties in 1997 and an
apartment complex and three commercial properties in 1998. Depreciation is
expected to increase during the fourth quarter of 1998, as a result of
depreciation on the properties acquired in the fourth quarter of 1997 and the
properties acquired in the first nine months of 1998.

Advisory fee to BCM increased from $548,000 and $1.6 million for the three
and nine months ended September 30, 1997 to $632,000 and $1.8 million for the
three and nine months ended September 30, 1998. This increase is due to an
increase in the Trust's gross assets, the basis for the advisory fee, as a
result of property acquisitions in 1997 and in 1998 partially offset by the
sale of four commercial properties in 1997 and an apartment complex and three
commercial properties in 1998. The advisory fee is expected to continue to
increase as the Trust makes additional property acquisitions.

For the three months ended September 30, 1998, the Trust recorded a net
income fee credit of $140,000 and for the nine months ended September 30, 1998,
the Trust recorded a net income fee of $58,000. A net income fee credit of
$99,000 and a net income fee of $287,000 were recorded for the three and nine
months ended September 30, 1997. The net income fee is 7.5% of the Trust's net
income.

General and administrative expenses decreased from $817,000 and $2.2 million
for the three and nine months ended September 30, 1997, to $504,000 and $1.6
million for the three and nine months ended September 30, 1998. These decreases
are primarily attributable to a decrease in legal fees related to the Olive
Litigation, partially offset by an increase in advisor cost reimbursements.

The Trust's equity in earnings of partnerships was a loss of $17,000 and
income of $56,000 for the three and nine months ended September 30, 1997, as
compared to income of $38,000 and $108,000 for the three and nine months ended
September 30, 1998. The increase is due primarily to a loss recorded in 1997 on
the sale of an industrial property by one of the equity partnerships.

For the nine months ended September 30, 1998, the Trust recognized a net
gain on the sale of real estate of $5.9 million, $5.6 million of such gain
being from the sale of the Edgewood Apartments in January 1998, a loss of
$154,000 on the sale of the Pinemont Professional Building in May 1998 and a
gain of $454,000 on the sale of the Rio Pinar Shopping Center in September
1998. For the three months ended September 30, 1997, the Trust recognized a
loss of $245,000 on the sale of Builders Square Shopping Center. For the nine
months ended September 30, 1997, the Trust also recognized gains on the sale of
real estate totaling $6.8 million, $5.4 million on the sale of Tollhill West
Office Building in April 1997 and $1.4 million on the sale of 2626 Cole Office
Building in May 1997.

1997 COMPARED TO 1996. For the year 1997, the Trust had net income of $4.2
million, as compared to net income of $8.7 million for the year 1996. The
Trust's 1997 net income includes gains on sale of real estate of $8.2 million
and its 1996 net income includes gains on the sale of real estate and
marketable equity securities of $10.1 million and an extraordinary gain of
$812,000. The primary factors contributing to the decrease in the Trust's net
income are discussed in the following paragraphs.

Rents increased from $44.2 million in 1996 to $55.2 million in 1997. Of this
increase, $8.3 million is due to the acquisition of four apartment complexes
and eight commercial properties in 1996 and $6.0 million is due

- 131 -
<PAGE>

to the acquisition of four apartment complexes and seven commercial properties
in 1997. An additional increase of $1.7 million is attributable to generally
higher rents and occupancy at the Trust's apartment complexes and commercial
properties. These increases are offset in part by a decrease of $3.8 million
due to the sale of five apartment complexes in 1996 and four commercial
properties in 1997 and a decrease of $1.4 million due to the loss of a
commercial property to foreclosure in 1996. Rents are expected to increase in
1998 due to a full year of operations for properties acquired in 1997.

Interest income increased from $1.1 million in 1996 to $1.3 million in 1997.
This increase is due to the receipt of unpaid interest on the collection of a
matured mortgage note receivable. Interest income is expected to decrease in
1998 due to note maturities, payoffs and notes placed on non-accrual status
during 1997.

Property operating expenses increased from $26.7 million in 1996 to $32.0
million in 1997. An increase of $5.2 million is due to the acquisition of four
apartment complexes and eight commercial properties during 1996 and an
additional $3.1 million is due to the acquisition of four apartment complexes
and seven commercial properties in 1997. The remainder of the increase is
primarily due to increased repair and maintenance and personnel expenses
incurred in an effort to maintain and increase the Trust's rental and occupancy
rates. These increases are partially offset by a decrease of $2.3 million due
to the sale of five apartment complexes in 1996 and four commercial properties
in 1997 and a decrease of $808,000 is due to the loss of a property to
foreclosure in 1996. Property operating expenses are expected to increase in
1998 due to a full year of operations of the properties acquired in 1997.

Interest expense increased from $12.8 million in 1996 to $17.1 million in
1997. Of this increase, $4.5 million is due to interest expense recognized on
mortgages secured by properties acquired in 1996 and 1997. An additional
$825,000 is due to interest expense on six borrowings in 1996 and 1997, secured
by mortgages on previously unencumbered apartment complexes, an office building
and eleven notes receivable and refinancing of seven existing mortgages. These
increases are partially offset by a decrease of $978,000 due to the sale of
three apartment complexes encumbered by debt in 1996 and four commercial
properties encumbered by debt in 1997 and a decrease of $495,000 due to the
loss of a property to foreclosure in 1996. Interest expense is expected to
increase in 1998, as a result of a full year of interest expense on properties
acquired or refinanced in 1997.

Depreciation expense increased from $4.8 million in 1996 to $6.2 million in
1997. This increase is due to the acquisition of four apartment complexes and
eight commercial properties in 1996 and four apartment complexes and seven
commercial properties in 1997, partially offset by the sale of four commercial
properties in 1997 and five apartment complexes in 1996. Depreciation is
expected to increase in 1998, as a result of a full year of depreciation on the
properties acquired in 1997.

A negative provision for losses of $884,000 was recognized in 1996. Such
negative provision represents accrued interest recorded on a mortgage between
February 1995, the date the Trust stopped making payments on the mortgage, and
September 1996 when the collateral property was transferred to the lender.

Advisory fee to BCM increased from $1.1 million in 1996 to $1.5 million in
1997, due to the increase in the Trust's gross assets, the basis for such fee.
The Trust's Declaration of Trust requires a portion of the advisory fee to be
refunded if certain operating expenses, as defined, exceed limits specified in
the Declaration of Trust. The effect of this limitation is to require the
Trust's advisor to refund $606,000 of the annual advisory fee for 1997 and
$589,000 of the annual advisory fee for 1996. Such fee is expected to continue
to increase as the Trust's assets increase.

Net income and incentive sales fees of $1.0 million were earned by BCM in
1996 and 1997. Such fees are the result of the Trust recognizing gains totaling
$9.4 million from the sale of three apartment complexes in 1996 and gains
totaling $8.2 million on the sale of four commercial properties in 1997.

- 132 -
<PAGE>

General and administrative expenses increased from $2.2 million in 1996 to
$2.7 million in 1997. Of this increase, $235,000 is due to an increase in cost
reimbursements to BCM, $129,000 is due to increased professional fees and
$127,000 is due to trustees and officers insurance premiums and other fees.

The Trust's equity in earnings of partnerships was $228,00 in 1996 as
compared to $99,000 in 1997. Included in equity earnings of partnerships in
1997 is a $49,000 loss on sale of real estate, the Trust's equity share of the
loss recognized by Indcon, L.P. ("Indcon"), a joint venture partnership at the
time, on the sale of one of its industrial warehouses. In October 1997, the
Trust purchased the remaining 40% interest in Indcon. Included in the 1996
equity in earnings of partnerships is a $370,000 gain on sale of real estate,
the Trust's equity share of the gain recognized by Indcon on the sale of 27 of
its industrial warehouses. Excluding such gain and loss, the Trust's equity in
earnings of partnerships would have been a loss of $143,000 in 1996 and income
of $148,000 in 1997. Equity in earnings of partnerships is expected to be
minimal in 1998 as a result of the Trust's purchase of the remaining 40%
interest in Indcon.

In 1997, the Trust recognized gains on the sale of real estate consisting of
$5.4 million on the sale of Tollhill West Office Building in April 1997, $1.4
million on the sale of 2626 Cole Office Building in May 1997, $1.5 million on
the sale of Northpoint Central Office Building in October 1997, a loss of
$245,000 on the sale of the Builders Square Shopping Center in September 1997
and recognized a deferred gain of $141,000 on the payoff of a mortgage note
receivable. In 1996, the Trust recognized gains on the sale of real estate
consisting of $378,000 on the sale of Rivertree Apartments in February 1996,
$5.4 million on the sale of Sunset Towers Apartments in May 1996 and $3.6
million on the sale of Southgate Apartments in August 1996. In 1996, the Trust
also recognized a gain of $725,000 on the sale of equity securities.

The Trust recognized no extraordinary gains in 1997. In 1996, the Trust
recognized an extraordinary gain of $149,000 representing an insurance
settlement for a fire loss at an apartment complex received subsequent to its
sale. Also in 1996, the Trust recognized an extraordinary gain of $663,000, its
equity share of an insurance settlement for a fire loss to an industrial
warehouse owned by Indcon that was not expected to be rebuilt.

1996 COMPARED TO 1995. For the year 1996, the Trust had net income of $8.7
million, compared to a net loss of $1.4 million for the year 1995. The Trust's
1996 net income includes gains on the sale of real estate and marketable equity
securities of $10.1 million and an extraordinary gain of $812,000. The Trust
recognized no such gain in 1995. The primary factors contributing to the
Trust's net income in 1996 are discussed in the following paragraphs.

Rents increased from $37.6 million in 1995 to $44.2 million in 1996. Of this
increase, $8.5 million is attributable to the acquisition of eight apartment
complexes and eleven commercial properties during 1995 and 1996. This increase
is partially offset by a decrease of $3.0 million attributable to the five
apartment complexes sold in 1996. The remaining increase is due primarily to
increases in rental and occupancy rates, primarily at the Trust's apartment
properties.

Interest income was $723,000 in 1995 compared to $1.1 million in 1996. Of
this increase, $114,000 is due to the funding of two mortgage loans for a total
of $2.0 million and a $750,000 purchase money note accepted by the Trust in
February 1996 in conjunction with the sale of the Rivertree Apartments which
was paid in full in August 1996. An additional increase of $366,000 is due to
increased short-term investment income.

Property operating expenses increased from $22.7 million in 1995 to $26.7
million in 1996. An increase of $4.9 million is due to the acquisition of eight
apartment complexes and eleven commercial properties during 1995 and 1996. The
remainder of the increase is primarily due to increased repair and maintenance
and personnel expenses in an effort to maintain and increase the Trust's rental
and occupancy rates. These increases are partially offset by a decrease of $1.5
million due to properties sold in 1996.

Interest expense increased from $10.0 million in 1995 to $12.8 million in
1996. Of this increase, $2.9 million is due to interest expense recorded on
mortgages secured by twelve properties, encumbered by debt,

- 133 -
<PAGE>

acquired during 1996 and 1995. An additional $805,000 is due to interest
expense recorded on borrowings during 1996 and 1995, secured by mortgages on
three previously unencumbered apartment complexes and one industrial warehouse
and the refinancing of six mortgages where the loan balance was increased. This
increase is partially offset by a decrease of $1.0 million due to the sale of
five apartment complexes and the return of one property to the lender in 1996.

Depreciation expense increased from $4.3 million in 1995 to $4.8 million in
1996. Of this increase, $1.9 million is due to the acquisition of eight
apartment complexes and eleven commercial properties during 1996 and 1995. This
increase is partially offset by a decrease of $496,000 due to the sale of five
apartment complexes in 1996.

A provision for losses of $541,000 was recognized in 1995 to provide for the
loss on the discounted payoff of the mortgage note receivable secured by an
apartment complex. A negative provision for losses of $884,000 was recognized
in 1996. Such negative provision represents accrued interest recorded on a
mortgage between February 1995, the date the Trust stopped making payments on
the mortgage, and September 1996 when the collateral property was transferred
to the lender.

Advisory fee to BCM was comparable at $1.1 million in 1996 and $1.3 million
in 1995, due to the increase in the Trust's gross assets, the basis for such
fee. The Trust's Declaration of Trust requires a portion of the advisory fee be
refunded if certain operating expenses, as defined, exceed limits specified in
the Declaration of Trust. The effect of this limitation was to require BCM to
refund $589,000 of the annual advisory fee for 1996 and $250,000 of the annual
advisory fee for 1995.

Net income and incentive sales fees of $1.0 million were earned by BCM in
1996. Such fees are the result of the Trust recognizing gains totaling $9.4
million from the sale of three apartment complexes, as discussed below. No such
fees were earned by BCM in 1995.

General and administrative expenses increased from $1.2 million in 1995 to
$2.2 million in 1996. This increase is primarily attributable to an increase in
legal fees related to the Olive Litigation and BCM cost reimbursements.

The Trust's equity in earnings of partnerships was $228,000 in 1996 compared
to $230,000 in 1995. Included in equity earnings of partnerships in 1996 is a
gain on sale of real estate of $370,000, the Trust's equity share of the gain
recognized by Indcon, a joint venture partnership, on the sale of 27 of its
industrial warehouses. Without such gain, the Trust's equity in earnings of
partnerships would have been a loss of $143,000. Such decrease is primarily due
to the sale of the 27 industrial warehouses in the first quarter of 1996. In
addition, interest expense for Sacramento Nine, also a joint venture
partnership, increased as a result of mortgage financing secured in August
1995, on a previously unencumbered office building.

In 1996, the Trust recognized gains on the sale of real estate consisting of
$378,000 on the sale of Rivertree Apartments in February 1996, $5.4 million on
the sale of Sunset Towers Apartments in May 1996 and $3.6 million on the sale
of Southgate Apartments in August 1996. In 1996, the Trust also recognized a
gain of $725,000 on the sale of its equity investment in NIRT. The Trust had no
such gains in 1995.

In 1996, the Trust recognized an extraordinary gain of $149,000 representing
an insurance settlement for a fire loss at an apartment complex received
subsequent to its sale. Also in 1996, the Trust recognized an extraordinary
gain of $663,000, its equity share of an insurance settlement for a fire loss
to an industrial warehouse owned by Indcon that was not expected to be rebuilt.
The Trust recognized no extraordinary gains in 1995.

ENVIRONMENTAL MATTERS

Under various federal, state and local environmental laws, ordinances and
regulations, the Trust may be potentially liable for removal or remediation
costs, as well as certain other potential costs, relating to hazardous

- 134 -
<PAGE>

or toxic substances (including governmental fines and injuries to persons and
property) where property-level managers have arranged for the removal, disposal
or treatment of hazardous or toxic substances. In addition, certain
environmental laws impose liability for release of asbestos-containing
materials into the air, and third parties may seek recovery from the Trust for
personal injury associated with such materials. The Trust's management is not
aware of any environmental liability relating to the above matters that would
have a materially adverse effect on the Trust's business, assets or results of
operations.

INFLATION

The effects of inflation on the Trust's operations are not quantifiable.
Gross revenues from property operations fluctuate proportionately with
inflationary increases and decreases in housing costs. Fluctuations in the rate
of inflation also affect the sales value of properties and, correspondingly,
the ultimate gains to be realized by the Trust from property sales. To the
extent that inflation affects interest rates, the Trust's earnings from short
term investments and the cost of new borrowings as well as existing variable
rate debt will be affected.

TAX MATTERS

For the years ended December 31, 1997, 1996 and 1995, the Trust elected and,
in management's opinion, qualified to be treated as a REIT under Sections 856
through 860 of the Code. To continue to qualify for federal taxation as a REIT
under the Code, the Trust is required to hold at least 75% of the value of its
total assets in real estate assets, government securities, cash and cash
equivalents at the close of each quarter of each taxable year. The Code also
requires a REIT to distribute at least 95% of its REIT taxable income plus 95%
of its net income from foreclosure property, all as defined in Section 857 of
the Code, on an annual basis to shareholders.

YEAR 2000

BCM, the Trust's advisor, has informed the Trust that its computer hardware
operating system and computer software have been certified as year 2000
compliant.

Further, Carmel Ltd., an affiliate of BCM, that performs property management
services for the Trust's properties, has informed the Trust that it is
currently testing year 2000 compliant property management computer software for
the Trust's commercial properties. Carmel Ltd. expects to begin utilizing such
software January 1, 1999. With regards to the Trust's apartment properties,
Carmel Ltd. has informed the Trust that its subcontractors either have in place
or will have in place in the first quarter of 1999, year 2000 compliant
property management computer software.

The Trust has not incurred, nor does it expect to incur, any costs related
to its accounting and property management computer software being modified,
upgraded or replaced in order to make it year 2000 compliant. Such costs have
been or will be borne by either BCM, Carmel Ltd. or the property management
subcontractors of Carmel Ltd.

Management has not completed its evaluation of the Trust's computer
controlled building systems, such as security, elevators, heating and cooling,
etc., to determine what systems are not year 2000 compliant. Management does
not believe that any necessary modifications to such systems will require
significant expenditures or cause interruptions in operations, as such enhanced
operating systems are readily available.

The Trust has or will have in place the year 2000 compliant systems that
will allow it to operate. The risks the Trust faces are that certain of its
vendors will not be able to supply goods or services and that financial
institutions and taxing authorities will not be able to accurately apply
payments made to them. Management believes that other vendors are readily
available and that financial institutions and taxing authorities will, if
necessary, apply monies received manually. The likelihood of the above having
significant impact on the Trust's operations is negligible.

- 135 -
<PAGE>

TCI MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

TCI invests in real estate through direct ownership and partnerships and
invests in mortgage loans, including first, wraparound and junior mortgage
loans. TCI is the successor to a business trust which was organized on
September 6, 1983, and commenced operations on January 31, 1984.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents aggregated $19.7 million at September 30, 1998
compared with $24.7 million at December 31, 1997. TCI's principal sources of
cash have been and will continue to be from property operations, proceeds from
property sales, the collection of mortgage notes receivable and borrowings. TCI
anticipates that its cash on hand, as well as cash generated from the
collection of mortgage notes receivable, sales of properties, borrowings
against certain of TCI's unencumbered properties and refinancing or extensions
of certain of its mortgage debt will be sufficient to meet all of TCI's cash
requirements including debt service obligations and expenditures for property
maintenance and improvements.

TCI's cash flow from property operations (rents collected less payments for
expenses applicable to rental income) increased from $12.0 million in the first
nine months of September 30, 1997 to $23.1 million in the first nine months of
1998. Of this increase $4.9 million is the result of TCI having acquired 32
properties during 1997 and 1998, $1.6 million is due to an increase in rental
rates and common area maintenance income at TCI's commercial properties and
$1.7 million is due to the sale of Republic Towers in 1997. These increases
were partially offset by a decrease of $615,000 due to properties sold during
1997 and 1998.

In January 1998, TCI purchased (1) the Mountain Plaza Apartments in El Paso,
Texas, for $4.0 million, consisting of $1.0 million in cash and mortgage
financing of $3.0 million, (2) the Hunters Glen Apartments in Midland, Texas,
for $2.5 million, consisting of $600,000 in cash and seller financing of $1.9
million, (3) a 1.41 acre parcel of land in Dallas, Texas, for $1.9 million in
cash, and (4) the Bent Tree Garden Apartments in Addison, Texas, for $8.1
million, consisting of $1.7 million in cash and mortgage financing of $6.4
million.

In February 1998, TCI purchased (1) the Parkway North Office Building in
Dallas, Texas, for $5.4 million, consisting of $1.5 million in cash and
mortgage financing of $3.9 million, and (2) a 2.14 acre parcel of land in
Dallas, Texas, for $3.4 million in cash.

In March 1998, TCI refinanced the mortgage debt secured by the Tricon
Warehouses in Atlanta, Georgia. The Company received net cash of $5.4 million
after paying off $4.8 million in mortgage debt.

Also in March 1998, TCI completed the sale of the Shaws Plaza Shopping
Center in Sharon, Massachusetts. TCI received net cash of $1.2 million after
paying off $2.6 million in mortgage debt.

Further in March 1998, TCI purchased the Plaza on Bachman Creek, a
retail/office complex in Dallas, Texas, for $3.5 million, consisting of $1.1
million in cash and mortgage financing of $2.4 million.

In April 1998, TCI purchased, in a single transaction, the Ashton Way and
4,400 Apartments in Midland, Texas, for $3.4 million, consisting of $700,000 in
cash and mortgage financing of $2.7 million.

Also in April 1998, TCI received $2.1 million in cash in settlement of a
mortgage note receivable which had been in default.

In May 1998, TCI purchased (i) the Woodview Apartments in Odessa, Texas, for
$3.4 million, consisting of $800,000 in cash and mortgage financing of $2.6
million, (ii) a 22.99 acre parcel of land in Farmers Branch, Texas, for $2.5
million in cash, (iii) the Emerald Terrace Apartments in Midland, Texas, for
$1.5 million,

- 136 -
<PAGE>

consisting of $425,000 in cash and mortgage financing of $1.1 million, (iv)
Daley Plaza Office Building in San Diego, California, for $4.6 million,
consisting of $1.1 million in cash and $3.5 million in mortgage financing, and
(v) the View Ridge Office Building in San Diego, California, for $1.9 million,
consisting of $600,000 in cash and $1.3 million in mortgage financing.

Also in May 1998, TCI obtained mortgage financing on its previously
unencumbered Lemmon Carlisle land. TCI received net cash of $2.1 million.

Further in May 1998, TCI refinanced the mortgage debt secured by the Plaza
Office Building in St. Petersburg, Florida. TCI received net cash of $2.6
million after paying off $4.8 million in mortgage debt.

In June 1998, TCI purchased the Atrium Office Building in Palm Beach,
Florida, for $5.4 million, consisting of $1.3 million in cash and mortgage
financing of $4.1 million.

In July 1998, TCI purchased the Valley Rim Office Building in San Diego,
California, for $5.1 million, consisting of $1.4 million in cash and mortgage
financing of $3.7 million.

Also in July 1998, TCI purchased the Limestone Canyon land in Austin, Texas,
for $1.8 million in cash.

Further in July 1998, TCI refinanced the matured mortgage debt secured by
the Villas at Countryside Apartments in Sterling, Virginia. The Company
received net cash of $400,000 after paying off $5.0 million in mortgage debt.

In July 1998, TCI received $671,000 in settlement of a mortgage note
receivable which had been written off as uncollectible in a prior year.

In August 1998, TCI obtained second lien financing secured by the Terrace
Hills Apartments in El Paso, Texas. TCI received net cash of $1.7 million.

Also in August 1998, TCI sold the Chesapeake Ridge Office Building in San
Diego, California, for $13.2 million in cash. TCI received net cash of $7.9
million after paying off $5.3 million in mortgage debt.

In September 1998, TCI purchased a first lien mortgage secured by a hotel in
Lake Charles, Indiana for $154,000 in order to protect its second lien secured
by such property.

Also in September 1998, TCI sold the Northtown Mall Shopping Center in
Dallas, Texas, for $15.6 million. TCI received net cash of $12.2 million after
paying off $2.5 million in mortgage debt and paying $900,000 to buyout a
tenant's lease.

In October 1998, TCI purchased the Cliffs of Eldorado Apartments in
McKinney, Texas, for $12.8 million, consisting of $1.6 million in cash, assumed
mortgage debt of $10.6 million and the issuance, in December 1998, of 5,829
share of Class A Cumulative Convertible Preferred Stock with a total
liquidation value of $583,000.

Also in October 1998, TCI sold the Denton Drive Warehouse in Dallas, Texas,
for $1.2 million in cash. TCI received net cash of $891,000 after paying off
$309,000 in mortgage debt.

Further in October 1998, TCI refinanced the matured mortgage debt secured by
the Bonita Plaza in Bonita, California. TCI received net cash of $1.2 million
after paying off $4.0 million in mortgage debt.

In October 1998, TCI sold approximately 19 acres of foreclosed land held for
sale in Greensboro, North Carolina, for $375,000. TCI received net cash of
$371,000.

In the first nine months of 1998, TCI paid quarterly dividends of $.45 per
share, or a total of $1.7 million. In January 1998, a special dividend of $1.00
per share which had been declared in December 1997, was also paid.

- 137 -
<PAGE>

TCI's Board of Directors has approved the repurchase of a total of 687,000
shares of TCI common stock. Through September 30, 1998, a total of 409,765
shares had been repurchased at a total cost of $3.3 million. During the first
nine months of 1998, 21,950 shares had been repurchased at a total cost of
$336,000.

During the first nine months of 1998, TCI sold 5,255 shares of its common
stock, through its dividend reinvestment plan for a total of $79,000.

Management reviews the carrying values of properties and mortgage notes
receivable at least annually and whenever events or a change in circumstances
indicate that impairment may exist. Impairment is considered to exist if, in
the case of a property, the future cash flow from the property (undiscounted
and without interest) is less than the carrying amount of the property. For
notes receivable, impairment is considered to exist if it is probable that all
amounts due under the terms of the note will not be collected. In those
instances where impairment is found to exist, a provision for loss is recorded
by a charge against earnings. The mortgage note receivable review includes an
evaluation of the collateral property securing each note. The property review
generally includes selective property inspections, discussions with the manager
of the property and visits to selected properties in the surrounding area and a
review of the following: (1) the property's current rents compared to market
rents; (2) the property's expenses; (3) maintenance requirements, and (4) the
property's cash flow.

RESULTS OF OPERATIONS

THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998. TCI had net income for
the three and nine months ended September 30, 1998, of $7.4 million and $8.0
million as compared to a net loss of $2.1 million and $3.3 million in the
corresponding periods in 1997. The net income for the three and nine months
ended September 30, 1998, includes $9.9 million and $12.0 million of gains on
the sale of real estate. The net loss for the three and nine months ended
September 30, 1997, includes gains on sale of real estate of $1.5 million.
Fluctuations in this and other components of revenues and expenses between the
1997 and 1998 periods are discussed below.

Rents in the three and nine months ended September 30, 1998, were $18.0
million and $51.4 million compared to $13.8 million and $39.2 million in the
corresponding periods in 1997. Of these increases, $405,000 and $1.6 million
was due to an increase in rental rates and common area maintenance income at
TCI's commercial properties and $4.3 million and $11.6 million was due to the
acquisition of 32 properties in 1997 and 1998. These increases were partially
offset by decreases of $815,000 and $1.7 million due to the sale of seven
properties in 1997 and 1998. Rents are expected to continue to increase due to
properties acquired in 1997 and 1998.

Interest income decreased to $200,000 and $593,000 in the three and nine
months ended September 30, 1998, compared to $510,000 and $1.3 million in the
corresponding periods in 1997. These decreases were due to four mortgage notes
receivable being paid in full in 1997 and 1998. Interest income for the fourth
quarter of 1998 is expected to approximate that of the third quarter of 1998.

Property operations expense in the three and nine months ended September 30,
1998 was $10.1 million and $27.4 million compared to $8.4 million and $23.4
million in the corresponding periods in 1997. Of these increases, $2.7 million
and $6.7 million for the three and nine months ended September 30, 1998, was
due to the acquisition of 32 properties in 1997 and 1998. These increases were
partially offset by decreases of $979,000 and $2.8 million for the three and
nine months ended September 30, 1998, due to the sale of seven properties
during 1997 and 1998 and $20,000 and $97,000 due to a decrease in property
replacements at TCI's commercial properties. Property operating expenses are
expected to continue due to properties acquired in 1997 and 1998.

Interest expense increased to $5.9 million and $16.9 million in the three
and nine months ended September 30, 1998, compared to $4.2 million and $12.0
million in the corresponding periods in 1997. Of these increases,

- 138 -
<PAGE>

$1.4 million and $4.3 million for the three and nine months ended September 30,
1998 is due to the debt incurred or assumed on 25 of the 32 properties acquired
in 1997 and 1998 and $371,000 and $873,000 is due to refinancings where the
debt balance was increased and financing obtained on unencumbered properties.
These increases were partially offset by decreases of $85,000 and $430,000 for
the three and nine months ended September 30, 1998, due to the sale of seven
properties in 1997 and 1998. Interest expense for the fourth quarter of 1998 is
expected to be comparable to that of the third quarter of 1998.

Depreciation expense increased to $2.8 million and $7.9 million for the
three and nine months ended September 30, 1998, compared to $2.4 million and
$7.0 million in the corresponding periods in 1997. Of these increases, $561,000
and $1.5 million for the three and nine months ended September 30, 1998 is due
to the acquisition of 32 properties in 1997 and 1998, with 17 of the properties
being acquired in the first nine months of 1998, and $151,000 and $458,000 due
to capital improvements. These increases were partially offset by a decrease of
$371,000 and $978,000 for the three and nine months ended September 30, 1998
due to seven properties being sold during 1997 and 1998. Depreciation is
expected to continue to increase during the remainder of 1998 as a result of
depreciation on the properties acquired in 1998.

Advisory fee increased to $671,000 and $1.9 million for the three and nine
months ended September 30, 1998, compared to $503,000 and $1.5 million in the
corresponding periods in 1997. These increases were due to an increase in gross
assets, the basis for such fee. Advisory fees are expected to continue to
increase with increases in TCI's gross assets, the basis for such fee.

Net income fee was $604,000 and $651,000 for the three and nine months ended
September 30, 1998. The net income fee is payable to BCM based on 7.5% of TCI's
net income. No such fee was incurred for the corresponding periods in 1997.

General and administrative expenses decreased to $584,000 and $1.6 million
for three and nine months ended September 30, 1998, compared to $713,000 and
2.0 million in the corresponding periods in 1997. The decrease of the three and
nine months ended September 30, 1998 was mainly due to a decrease in legal fees
relating to the Republic Towers and Olive Litigation.

Equity in earnings of investees was a loss of $90,000 and income of $342,000
for the three and nine months ended September 30, 1998, compared to a loss of
$97,000 and income of $680,000 for the corresponding periods in 1997. Included
in equity earnings of investees for the nine months ended September 30, 1998,
is a gain on the sale of real estate of $316,000 which is TCI's equity share of
the gain recognized by Tri-City on the sale of two apartment complexes.
Included in equity earnings of investees for the nine months ended September
30, 1997, is a gain on sale of real estate of $747,000, which is TCI's equity
share of the gain recognized by IORI on the sale of two apartment complexes. At
October 30, 1998, TCI owned approximately 22.8% of IORI's outstanding shares of
common stock.

In the three and nine months ended September 30, 1998, TCI recognized net
gains from the sale of real estate totaling $9.9 million and $12.0 million. In
the three months, gains totaling $9.3 million were recognized on the sale of
the Chesapeake Ridge Office Building and Northtown Mall Shopping Center, both
of which were held for sale at June 30, 1998. In addition, gains in the nine
months, includes $671,000 from the collection of a mortgage note receivable
written off as uncollectible in a prior year and the recognition of a $2.1
million deferred gain on the collection of a mortgage note receivable. In the
nine months ended September 30, 1997, TCI recognized gains totaling $1.5
million on the sale of the following: (1) the Fiesta Mart, a shopping center;
(2) a parcel of land in the Dallas central business district; and, (3) a
foreclosed single family residence.

1997 COMPARED TO 1996. TCI's net income for 1997 was $12.6 million compared
to a net loss of $7.8 million in 1996. TCI's 1997 net income includes gains on
sale of real estate of $21.4 million. TCI's 1996 net loss includes gains on
sale of real estate of $1.6 million and extraordinary gains of $256,000.
Fluctuations in the components of TCI's revenues and expenses between the 1997
and 1996 are described below.

- 139 -
<PAGE>

Rents increased $9.1 million in 1997 to $54.5 million compared to $45.4
million in 1996. An increase of $6.9 million in rents is due to property
acquisitions in 1996 and 1997; and $3.1 million is due to increases in
occupancy and rental rates at TCI's residential and commercial properties,
primarily: Plaza Tower Office Building, a 1% increase; Waterstreet Office
Building, a 2% increase; Institute Place Office Building, a 10% increase; 74
New Montgomery Office Building, a 2% increase; Corporate Center at Beaumeade
Office Building, a 2% increase; and Majestic Inn, a 3% increase. These
increases are partially offset by a decrease of $865,000 due to properties sold
in 1996 and 1997.

Property operating expenses increased $3.9 million in 1997 to $32.4 million
as compared to $28.5 million in 1996. Of this increase, $4.3 million is due to
properties acquired in 1996 and 1997. This increase is partially offset by a
decrease of $504,000 due to properties sold in 1996 and 1997.

Rents and property operations expenses both are expected to increase in 1998
due to anticipated increases in rents at TCI's apartments and increased
occupancy of its commercial properties as a result of a full year of operations
of the properties acquired during 1997 and in the first quarter of 1998.

Interest income for 1997 of $1.5 million approximated that of 1996.

Interest expense increased to $16.8 million in 1997 as compared to $15.0
million in 1996. Of this increase $1.6 million is attributable to properties
acquired in 1997 and $316,000 is attributable to property financings and
refinancings during 1997. These increases are partially offset by decreases of
$73,000 due to properties sold and mortgages paid off and $71,000 due to a
decrease in interest rates on variable interest rate debt. Interest expense is
expected to increase in 1998 due to anticipated property refinancings and the
properties acquired in the first quarter of 1998.

Depreciation expense increased to $9.6 million in 1997 as compared to $8.5
million in 1996. An increase of $752,000 is attributable to property
acquisitions and an increase of $515,000 is due to increased depreciation from
property additions and tenant improvements. These increases were partially
offset by decreases of $63,000 due to properties sold and $88,000 due to assets
becoming fully depreciated. Depreciation expense is expected to increase in
1998 due to a full year of depreciation of properties acquired in 1997 and the
properties acquired in the first quarter of 1998.

Advisory fee expense of $1.8 million in 1997 approximated that of 1996.

General and administrative expenses decreased from $2.7 million in 1996 to
$2.6 million in 1997. The decrease is due to a decrease in legal fees related
to the Olive Litigation and other litigation partially offset by an increase in
BCM cost and reimbursements and other professional fees.

In 1997 TCI received an insurance settlement of $9.6 million. In 1996, TCI
received a litigation settlement of $1.5 million.

In the fourth quarter of 1997, TCI recognized a provision for loss of $1.3
million to reduce the carrying value of a shopping center to its agreed sales
price less estimated costs of sale. Sale of the property is anticipated in
March 1998. In the second quarter of 1996, TCI recognized a provision for loss
of $1.6 million to reduce the carrying value of an office building to its
agreed sales price less estimated costs of sale. Sale of the property was
completed in July 1996.

Equity in earnings of investees was $812,000 in 1997 compared to a loss of
$20,000 in 1996. Included in equity earnings of investees in 1997 are gains on
the sale of real estate of $890,000 which is TCI's share of the gain recognized
on the sale of three of its apartment complexes.

In 1996, TCI recognized extraordinary gains totaling $256,000 on the
modification of the mortgage debt secured by the Dunes Plaza Shopping Center.
No such gain was recognized in 1997.

- 140 -
<PAGE>

In 1997, TCI recognized gains totaling $21.4 million, $1.4 million from the
sale of a .9976 acre parcel of land and $19.4 million from the sale of an
office building, both located in Dallas, Texas, $55,000 from the sale of a
foreclosed single family residence in Scottsdale, Arizona and $554,000 from the
sale of a shopping center in San Antonio, Texas.

In 1996, TCI recognized gains of $218,000, $1.4 million and $56,000 from the
sales of Cheyenne Mountain land, Park Forest Apartments and Moss Creek land. In
September 1996, TCI recognized a loss of $63,000 from the sale of Byron land.

1996 COMPARED TO 1995. TCI's net loss for 1996 was $7.8 million compared to
a net loss of $3.7 million in 1995. TCI's 1996 net loss includes gains of sale
of real estate of $1.6 million and extraordinary gains of $256,000. TCI's 1995
net loss includes gains on sale of real estate of $5.8 million and
extraordinary gains of $1.4 million. Fluctuations in the components of TCI's
revenues and expenses between the 1996 and 1995 are described below.

Rents decreased $1.4 million in 1996 to $45.4 million compared to $46.8
million in 1995. A decreased of $5.3 million in rents is due to properties sold
in 1995 and 1996. Offsetting this decrease in rents is an increase of $538,000
due to the acquisition of the remaining partnership interest in three
partnerships in 1995; $926,000 is due to property acquisitions in late 1995 and
1996; and $2.4 million is due to increases in occupancy at several of TCI's
commercial properties, primarily: Corporate Center at Beaumeade Industrial
Warehouse, a 29% increase; Park Long Industrial Warehouse, a 9% increase; Plaza
Towers Office Building, a 6% increase; and 74 New Montgomery Office Building, a
3% increase.

Property operating expenses decreased $1.7 million in 1996 to $28.5 million
as compared to $30.2 million in 1995. Of this decrease, $3.1 million is due to
properties sold. This decrease is partially offset by increases of $935,000 due
to property acquisitions and $544,000 due to the acquisition of the remaining
partnership interest in three partnerships in 1995.

Interest income for 1996 of $1.5 million approximated the $1.5 million in
1995.

Interest expense decreased to $15.0 million in 1996 as compared to $16.1
million in 1995. Of this decrease, $1.7 million due to properties sold and
mortgages paid off. This decrease is partially offset by increases of $180,000
attributable to the acquisition of the remaining partnership interests in three
partnerships during 1995, $107,000 attributable to properties acquired in 1996,
$488,000 attributable to property financings and refinancings during 1996, and
$107,000 attributable to increases in the interest rates on variable rate
mortgage debt.

Depreciation expense decreased to $8.5 million in 1996 as compared to $8.6
million in 1995. An increase of $36,000 is attributable to the acquisition of
the remaining partnership interests in three partnerships during 1995, an
increase of $57,000 is attributable to property acquisitions and an increase of
$570,000 is due to increased depreciation from property additions and tenant
improvements. These increases were more than offset by a decreases of $645,000
due to properties sold and $179,000 due to assets becoming fully depreciated.

The advisory fee of $1.8 million in 1996 was comparable to the $1.8 million
in 1995.

General and administrative expenses increased to $2.7 million in 1996 form
$2.0 million in 1995. The increase is due to an increase in legal fees related
to the Olive Litigation.

In 1996 and 1995 TCI received litigation settlements of $1.5 million and
$500,000, respectively.

In the second quarter of 1996, TCI recognized a provision for loss of $1.6
million to reduce the carrying value of an office building to its agreed sales
price less estimated costs of sale. Sale of the property was completed in July
1996. No provision for loss was recognized in 1995.

- 141 -
<PAGE>

Equity in losses in investees was $20,000 in 1996 compared to $1.1 million
in 1995. The decreased equity loss is primarily due to the 1995 modification of
a wraparound mortgage note receivable and underlying note payable by NIA, a
partnership in which TCI has a 60% general partner interest, and the writedown
of a wraparound mortgage note receivable to the balance of an underlying first
lien mortgage also by NIA. TCI's equity share of the loss on the note
modification was $127,000 and its equity share of the note writedown was
$901,000.

TCI recognized extraordinary gains totaling $256,000 in 1996 on the
modification of the mortgage debt secured by the Dunes Plaza Shopping Center.
In 1995, TCI recognized extraordinary gains totaling $1.4 million on the payoff
of the mortgage debt secured by the Fountain Village Apartments and a principal
pay down and modification of the mortgage debt secured by the Dunes Plaza
Shopping Center.

In 1996, TCI recognized gains of $218,000, $1.4 million and $56,000 from the
sales of Cheyenne Mountain land, Park Forest Apartments and Moss Creek land. In
September 1996, the Company recognized a loss of $63,000 from the sale of Byron
land. In 1995, the Company recognized a gain of $1.6 million on the collection
of the note receivable secured by the Maumelle land and a gain of $4.1 million
on the sale of the Summerchase Apartments.

ENVIRONMENTAL MATTERS

Under various federal, state and local environmental laws, ordinances and
regulations, TCI may be potentially liable for removal or remediation costs, as
well as certain other potential costs relating to hazardous or toxic substances
(including governmental fines and injuries to persons and property) where
property-level managers have arranged for the removal, disposal or treatment of
hazardous or toxic substances. In addition, certain environmental laws impose
liability for release of asbestos-containing materials into the air, and third
parties may seek recovery from TCI for personal injury associated with the
materials.

Management is not aware of any environmental liability relating to the above
matters that would have a material adverse effect on TCI's business, assets or
results of operations.

INFLATION

The effects of inflation on TCI's operations are not quantifiable. Revenues
from property operations fluctuate proportionately with inflationary increases
and decreases in housing costs. Fluctuations in the rate of inflation also
affect sale values of properties, and correspondingly, the ultimate realizable
value of TCI's real estate and notes receivable portfolios. Inflation also has
an effect on TCI's earnings from short-term investments.

TAX MATTERS

For the years 1997, 1996 and 1995, TCI elected and in the opinion of
management, qualified to be taxed as a REIT as defined under Sections 856
through 860 of the Code. To continue to qualify for federal taxation as a REIT
under the Code, TCI is required to hold at least 75% of the value of its total
assets in real estate assets, government securities, cash and cash equivalents
at the close of each quarter of each taxable year. The Code also requires a
REIT to distribute at least 95% of its REIT taxable income, plus 95% of its net
income from foreclosure property, all as defined in Section 857 of the Code, on
a annual basis to stockholders.

YEAR 2000

TCI's advisor has informed TCI that its computer hardware operating system
and computer software have been certified as year 2000 compliant.

Further, Carmel Ltd., an affiliate of BCM that performs property management
services for TCI's properties, has informed TCI that it is currently testing
year 2000 compliant property management computer

- 142 -
<PAGE>

software for TCI's commercial properties. Carmel Ltd. expects to begin
utilizing such software January 1, 1999. With regards to TCI's apartment
properties, Carmel Ltd. has informed TCI that its subcontractors either have in
place or will have in place in the first quarter of 1999, year 2000 compliant
property management computer software.

TCI has not incurred, nor does it expect to incur, any costs related to its
accounting and property management computer software being modified, upgraded
or replaced in order to make it year 2000 compliant. Such costs have been or
will be borne by either BCM, Carmel Ltd. or the property management
subcontractors of Carmel Ltd.

Management has not completed its evaluation of TCI's computer controlled
building systems, such as security, elevators, heating and cooling, etc., to
determine what systems are not year 2000 compliant. Management does not believe
that any necessary modifications to such systems will require significant
expenditures or cause interruptions in operations, as such enhanced operating
systems are readily tavailable.

TCI has or will have in place the year 2000 compliant systems that will
allow it to operate. The risks TCI faces are that certain of its vendors will
not be able to supply goods or services and that financial institutions and
taxing authorities will not be able to accurately apply payments made to them.
Management believes that other vendors are readily available and that financial
institutions and taxing authorities will, if necessary, apply monies received
manually. The likelihood of the above having significant impact on TCI's
operations is negligible.

- 143 -
<PAGE>

LEGAL MATTERS

The validity of the shares of the TCI common stock to be issued by TCI
pursuant to the Incorporation Procedure and the Merger have been passed upon by
Kummer Kaempfer Bonner & Renshaw, Las Vegas, Nevada.

The federal income tax consequences of the Incorporation Procedure and the
Merger have been passed upon by Andrews & Kurth L.L.P., Dallas, Texas.

EXPERTS

The financial statements and schedules of TCI and the Trust incorporated by
reference in this Joint Proxy Statement/Prospectus have been audited by BDO
Seidman, LLP, independent certified public accountants, to the extent and for
the periods set forth in their reports incorporated herein by reference and
such reports are incorporated herein in reliance upon the authority of said
firm as experts in auditing and accounting.

AVAILABLE INFORMATION

The Trust and TCI are subject to the informational requirements of the
Exchange Act, and in accordance therewith are required to file periodic
reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and
other information filed by the Trust and TCI may be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street N.W., Washington, D.C. 20549, and the
following regional offices of the SEC: Northeast Regional Office, 7 World Trade
Center, Suite 1300, New York, New York 10048 and Midwest Regional Office,
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-
2511. Copies of such material can also be obtained from the Commission at
prescribed rates by addressing written requests for such copies to the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. Such materials may also be accessed electronically by means of the
Commission's home page on the Internet at http://www.sec.gov. The Trust's
shares are listed on the NASDAQ and such material relating to the Trust can
also be inspected at the National Association of Securities Dealers, Inc. at
1735 K Street, N.W., Washington, D.C. 20006. TCI's shares are listed on the
NYSE and such material relating to TCI can also be inspected at the offices of
the NYSE, 20 Broad Street, New York, New York 10005.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents, filed with the Commission by the Trust under the
Exchange Act (File No. 0-10503), are incorporated in and made a part of this
Joint Proxy Statement/Prospectus by reference:

1. the Trust's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, as filed with the Commission on March 20, 1998;

2. the Trust's Quarterly Report on Form 10-Q for the quarter ended March
31, 1998, as filed with the Commission on May 14, 1998;

3. the Trust's Quarterly Report on Form 10-Q for the quarter ended June 30,
1998, as filed with the Commission on August 11, 1998;

4. the Trust's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, as filed with the Commission on November 12, 1998;

- 144 -
<PAGE>

5. the Trust's Current Report on Form 8-K dated April 3, 1998, as filed
with the Commission on June 25, 1998; and

6. the Trust's Current Report on Form 8-K dated September 21, 1998, as
filed with the Commission on September 28, 1998;

THESE DOCUMENTS ARE AVAILABLE UPON REQUEST WITHOUT CHARGE FROM CONTINENTAL
MORTGAGE AND EQUITY TRUST, 10670 NORTH CENTRAL EXPRESSWAY, SUITE 300, DALLAS,
TEXAS 75231, PHONE (214) 692-4800 (INVESTOR RELATIONS). IN ORDER TO ENSURE
TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE TRUST SPECIAL MEETING, ANY
REQUEST SHOULD BE RECEIVED BY , 199 .

In addition, the following documents, filed with the Commission by TCI under
the Exchange Act (File No. 1-9240), are incorporated in and made a part of this
Joint Proxy Statement/Prospectus by reference:

1. TCI's Annual Report on Form 10-K for the fiscal year ended December 31,
1997, as filed with the Commission on March 20, 1998;

2. TCI's Quarterly Report on Form 10-Q for the quarter ended March 31,
1998, as filed with the Commission on May 4, 1998;

3. TCI's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998,
as filed with the Commission on August 5, 1998;

4. TCI's Quarterly Report on Form 10-Q for the quarter ended September 30,
1998, as filed with the Commission on November 9,1998;

5. TCI's Current Report on Form 8-K dated May 29, 1998, as filed with the
Commission on May 29, 1998;

6. TCI's Current Report on Form 8-K dated January 9, 1998, as filed with
the Commission on January 9, 1998, as amended by TCI's Current Report on
Form 8-K/A, as filed with the Commission on June 29, 1998;

7. TCI's Current Report on Form 8-K dated May 29, 1998, as filed with the
Commission on July 2, 1998, as amended by TCI's Current Report on Form
8K/A, as filed with the Commission on September 23, 1998;

8. TCI's Current Report on Form 8-K dated June 26, 1998, as filed with the
Commission on July 21, 1998, as amended by TCI's Current Report on Form
8-K/A, as filed with the Commission on October 16, 1998;

9. TCI's Current Report on Form 8-K dated September 21, 1998, as filed with
the Commission on September 28, 1998; and

10. TCI's Current Report on Form 8-K dated October 20, 1998, as filed with
the Commission on December 4, 1998.

THESE DOCUMENTS ARE AVAILABLE UPON REQUEST WITHOUT CHARGE FROM
TRANSCONTINENTAL REALTY INVESTORS, INC., 10670 NORTH CENTRAL EXPRESSWAY, SUITE
300, DALLAS, TEXAS 75231, PHONE (214) 692-4800 (INVESTOR RELATIONS). IN ORDER
TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE TCI SPECIAL MEETING,
ANY REQUEST SHOULD BE RECEIVED BY , 199 .

Any statement contained in a document incorporated by reference shall be
deemed to be modified or superseded for all purposes to the extent that a
statement contained in this Joint Proxy Statement/Prospectus, or in any other
subsequently filed document which is also, or is deemed to be, incorporated by
reference, modifies

- 145 -
<PAGE>

or replaces such statement. Any such statement so modified or superseded shall
not be deemed to constitute a part of this Joint Proxy Statement/Prospectus,
except as so modified or superseded.

TCI has filed a registration statement on Form S-4, No. 333- (the
"Registration Statement"), pursuant to the Securities Act of 1933, as amended,
with respect to the shares of TCI common stock to be issued in connection with
the Merger. This Joint Proxy Statement/Prospectus constitutes the prospectus of
TCI filed as part of the Registration Statement.

All information contained in this Joint Proxy Statement/Prospectus with
respect to TCI has been supplied by TCI, and all information with respect to
the Trust has been supplied by the Trust.

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH THE SOLICITATION OF PROXIES OR THE
OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST
OR TCI. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES, OR THE
SOLICITATION OF A PROXY, IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO
WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN OFFER OR PROXY
SOLICITATION. NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR
ANY DISTRIBUTION OF THE SECURITIES OFFERED HEREBY SHALL UNDER ANY CIRCUMSTANCES
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE TRUST
OR TCI SINCE THE DATE HEREOF OR THAT THE INFORMATION SET FORTH OR INCORPORATED
BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.

SOLICITATION OF PROXIES

THIS JOINT PROXY STATEMENT/PROSPECTUS IS FURNISHED TO STOCKHOLDERS TO
SOLICIT PROXIES ON BEHALF OF THE TRUSTEES OF THE TRUST. The cost of soliciting
proxies will be borne by the Trust. Trustees and officers of the Trust may,
without additional compensation, solicit proxies by mail, in person or by
telecommunication. In addition, the Trust has retained Shareholder
Communication Corporation ("SCC") to assist in the solicitation of proxies. An
agreement with SCC provides that SCC will distribute materials relating to the
solicitation of proxies, contact stockholders to confirm receipt of such
materials and answer questions relating thereto. SCC is to be paid a base fee
of $2,000 plus out-of-pocket expenses and is to be indemnified against all
liability incurred as a result of any material omission or misstatement in any
of the materials so distributed.

By Order of the Board of Trustees

By: _______________________
Randall M. Paulson,
President

THE BOARD OF TRUSTEES OF THE TRUST RECOMMENDS THAT YOU VOTE FOR THE APPROVAL
OF THE INCORPORATION PROCEDURE AND THE MERGER AND RATIFICATION OF CERTAIN
COMPONENTS THEREOF BY VOTING FOR THE INCORPORATION PROCEDURE AND MERGER ON THE
ENCLOSED PROXY. REGARDLESS OF HOW YOU WISH TO VOTE YOUR SHARES, YOUR BOARD OF
TRUSTEES URGES YOU TO PROMPTLY SIGN, DATE AND MAIL THE ENCLOSED PROXY.

- 146 -
<PAGE>

SOLICITATION OF PROXIES

THIS JOINT PROXY STATEMENT/PROSPECTUS IS FURNISHED TO STOCKHOLDERS TO
SOLICIT PROXIES ON BEHALF OF THE BOARD OF DIRECTORS OF TCI. The cost of
soliciting proxies will be borne by TCI. Board members and officers of TCI may,
without additional compensation, solicit proxies by mail, in person or by
telecommunication. In addition, TCI has retained SCC to assist in the
solicitation of proxies. An agreement with SCC provides that SCC will
distribute materials relating to the solicitation of proxies, contact
stockholders to confirm receipt of such materials and answer questions relating
thereto. SCC is to be paid a base fee of $2,000 plus out-of-pocket expenses and
is to be indemnified against all liability incurred as a result of any material
omission or misstatement in any of the materials so distributed.

By Order of the Board of Directors

By: _______________________
Randall M. Paulson,
President

THE BOARD OF DIRECTORS OF TCI RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF
THE MERGER AND RATIFICATION OF CERTAIN COMPONENTS THEREOF BY VOTING FOR THE
MERGER ON THE ENCLOSED PROXY. REGARDLESS OF HOW YOU WISH TO VOTE YOUR SHARES,
YOUR BOARD OF DIRECTORS URGES YOU TO PROMPTLY SIGN, DATE AND MAIL THE ENCLOSED
PROXY.

- 147 -
<PAGE>

APPENDIX A

INDEX OF PRINCIPAL DEFINED TERMS
<TABLE>
<S> <C>
Acquisition Date............................................................ 62
Affiliate................................................................... 43
Articles of Incorporation Amendment Provision............................... 65
ART......................................................................... 40
BCM......................................................................... 4
Beneficial Owner............................................................ 62
Brokerage Agreement......................................................... 27
Business Combination Provision.............................................. 62
Business Combination........................................................ 62
Bylaw Amendment Provision................................................... 65
Carmel Ltd.................................................................. 27
Carmel Realty............................................................... 27
CCEC........................................................................ 43
CGCL........................................................................ 58
CME Corporation............................................................. 2
CMOs........................................................................ 51
Code........................................................................ 19
Commission.................................................................. 144
Conversion.................................................................. 42
Declaration of Trust........................................................ 100
Director Removal Provision.................................................. 47
Effective Time.............................................................. 25
Eldercare................................................................... 44
Evaluation Provision........................................................ 64
Exchange Act................................................................ 54
Exchange Ratio.............................................................. 19
First Equity................................................................ 45
Incorporation Procedure..................................................... 2
Indcon...................................................................... 133
Independent................................................................. 44
Interested Stockholder...................................................... 62
IORI........................................................................ 44
Marshall & Stevens.......................................................... 34
Material Adverse Change..................................................... 69
Material Adverse Effect..................................................... 69
Merger Agreement............................................................ 2
Merger...................................................................... 2
</TABLE>
<TABLE>
<S> <C>
MHA....................................................................... 92
NASDAQ.................................................................... 5
NIA....................................................................... 92
NIRT...................................................................... 44
NMC....................................................................... 45
NOLP...................................................................... 45
Nomination Provision...................................................... 61
Non-Stockholder Constituencies............................................ 64
NRLP...................................................................... 45
NRS....................................................................... 33
NYSE...................................................................... 6
Olive Amendment........................................................... 18
Olive Litigation.......................................................... 18
Olive Modification........................................................ 18
Person.................................................................... 43
Registration Statement.................................................... 146
REIT...................................................................... 2
REMICS.................................................................... 51
SAMI...................................................................... 45
SAMLP..................................................................... 45
SCC....................................................................... 146
SEC....................................................................... Cover
Series A Preferred Stock.................................................. 57
Southmark................................................................. 45
Stockholder Proposal Provision............................................ 61
SWI....................................................................... 98
TCI Advisory Agreement.................................................... 16
TCI Financial Advisor..................................................... 34
TCI Record Date........................................................... 23
TCI....................................................................... Cover
Treasury Regulations...................................................... 66
Trust Advisory Agreement.................................................. 16
Trust Financial Advisor................................................... 38
Trust Record Date......................................................... 22
Trust..................................................................... Cover
Voting Stock.............................................................. 62
VPT....................................................................... 45
Ward...................................................................... 82
</TABLE>

A-1
<PAGE>

APPENDIX B

EXECUTION COPY

AGREEMENT AND PLAN OF MERGER

BY AND BETWEEN

TRANSCONTINENTAL REALTY INVESTORS, INC.,

AND

CONTINENTAL MORTGAGE AND EQUITY TRUST

DATED AS OF NOVEMBER 18, 1998

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE I -- THE INCORPORATION AND THE MERGER............................ B-1
SECTION 1.01. The Incorporation...................................... B-1
SECTION 1.02. The Merger............................................. B-1
SECTION 1.03. Effective Time......................................... B-1
SECTION 1.04. Effect of the Merger................................... B-1
SECTION 1.05. Articles of Incorporation; Bylaws...................... B-2
SECTION 1.06. Directors and Officers................................. B-2
SECTION 1.07. Additional Actions..................................... B-2
SECTION 1.08. Conversion of Common Shares............................ B-2
SECTION 1.09. Exchange Procedure..................................... B-3
SECTION 1.10. Dissenting Shares...................................... B-4
ARTICLE II -- CLOSING.................................................... B-5
SECTION 2.01. Closing................................................ B-5
SECTION 2.02. Deliveries by CMET to TCI.............................. B-5
SECTION 2.03. Deliveries by TCI to CMET (and/or CME Corporation)..... B-5
ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF CMET.................... B-6
SECTION 3.01. Organization and Qualification of CMET................. B-6
SECTION 3.02. Power and Capacity; Charter Documents of CMET.......... B-6
SECTION 3.03. Subsidiaries........................................... B-6
SECTION 3.04. Capitalization and Ownership of CMET................... B-6
SECTION 3.05. No Conflicts........................................... B-7
SECTION 3.06. Consents and Approvals................................. B-7
SECTION 3.07. Financial and Operating Statements..................... B-7
SECTION 3.08. No Material Undisclosed or Contingent Liabilities...... B-8
SECTION 3.09. Assets of CMET......................................... B-8
SECTION 3.10. Absence of Certain Changes............................. B-9
SECTION 3.11. Real Property.......................................... B-10
SECTION 3.12. CMET Equipment......................................... B-11
SECTION 3.13. Contracts and Commitments.............................. B-11
SECTION 3.14. Litigation............................................. B-12
SECTION 3.15. Insurance.............................................. B-12
SECTION 3.16. Employees; Officer and Trustee Compensation............ B-13
SECTION 3.17. Compliance with Law.................................... B-13
SECTION 3.18. Material Permits....................................... B-13
SECTION 3.19. Environmental Matters.................................. B-14
SECTION 3.20. Tax Matters............................................ B-14
SECTION 3.21. Title to Assets........................................ B-15
SECTION 3.22. Redemptions of Capital Stock by CMET................... B-15
SECTION 3.23. Bank Accounts.......................................... B-15
SECTION 3.24. Brokers................................................ B-15
SECTION 3.25. Fairness Opinion....................................... B-16
ARTICLE IV -- REPRESENTATIONS AND WARRANTIES OF TCI...................... B-16
SECTION 4.01. Organization and Qualification of TCI.................. B-16
SECTION 4.02. Power and Capacity; Charter Documents of TCI........... B-16
SECTION 4.03. Subsidiaries........................................... B-16
SECTION 4.04. Capitalization and Ownership of TCI.................... B-16
SECTION 4.05. No Conflicts........................................... B-17
</TABLE>

i
<PAGE>

TABLE OF CONTENTS
(Continued)

<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
SECTION 4.06. Consents and Approvals................................ B-17
SECTION 4.07. Financial and Operating Statements.................... B-17
SECTION 4.08. No Material Undisclosed or Contingent Liabilities..... B-18
SECTION 4.09. Assets of TCI......................................... B-18
SECTION 4.10. Absence of Certain Changes............................ B-18
SECTION 4.11. Real Property......................................... B-20
SECTION 4.12. TCI Equipment......................................... B-20
SECTION 4.13. Contracts and Commitments............................. B-21
SECTION 4.14. Litigation............................................ B-22
SECTION 4.15. Insurance............................................. B-22
SECTION 4.16. Employees; Officer and Director Compensation.......... B-22
SECTION 4.17. Compliance with Law................................... B-23
SECTION 4.18. Material Permits...................................... B-23
SECTION 4.19. Environmental Matters................................. B-23
SECTION 4.20. Tax Matters........................................... B-24
SECTION 4.21. Title to Assets....................................... B-25
SECTION 4.22. Redemptions of Capital Stock by TCI................... B-25
SECTION 4.23. Brokers............................................... B-25
SECTION 4.24. Fairness Opinion...................................... B-25
ARTICLE V -- OTHER OBLIGATIONS OF THE PARTIES........................... B-25
SECTION 5.01. Conduct of CMET Business.............................. B-25
SECTION 5.02. Conduct of TCI Business............................... B-27
SECTION 5.03. Access to Books and Records........................... B-28
SECTION 5.04. Consents.............................................. B-28
SECTION 5.05. Other Transactions.................................... B-28
SECTION 5.06. Supplemental Disclosure by CMET....................... B-29
SECTION 5.07. Supplemental Disclosure by TCI........................ B-29
SECTION 5.08. Governmental Filings.................................. B-30
SECTION 5.09. Covenants Relating to TCI Common Stock................ B-30
SECTION 5.10. Covenant to Satisfy Conditions........................ B-30
SECTION 5.11. Shareholder Approvals................................. B-30
SECTION 5.12. Information Delivered to Shareholders................. B-30
SECTION 5.13. Non-Public Information................................ B-31
SECTION 5.14. Confidentiality....................................... B-31
ARTICLE VI -- CONDITIONS PRECEDENT...................................... B-31
SECTION 6.01. Conditions Precedent to Obligations of TCI............ B-31
SECTION 6.02. Conditions Precedent to Obligations of CMET........... B-32
ARTICLE VII -- TERMINATION OF AGREEMENT................................. B-34
SECTION 7.01. Termination of Agreement.............................. B-34
SECTION 7.02. Procedure Upon Termination............................ B-34
SECTION 7.03. Effect of Termination................................. B-34
ARTICLE VIII -- MISCELLANEOUS........................................... B-34
SECTION 8.01. Survival of Representations and Warranties............ B-34
SECTION 8.02. Definition of Knowledge............................... B-34
Definition of Material Adverse Effect and Material
SECTION 8.03. Adverse Change........................................ B-34
</TABLE>

ii
<PAGE>

TABLE OF CONTENTS
(Continued)

<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
SECTION 8.04. Expenses, Taxes, Etc. .................................. B-35
SECTION 8.05. Successors and Assigns.................................. B-35
SECTION 8.06. No Third-Party Benefit.................................. B-35
SECTION 8.07. Entire Agreement; Amendment............................. B-35
SECTION 8.08. Reformation and Severability............................ B-35
SECTION 8.09. Notices................................................. B-36
SECTION 8.10. Number and Gender....................................... B-36
SECTION 8.11. Governing Law........................................... B-36
SECTION 8.12. Counterparts............................................ B-36
</TABLE>

EXHIBITS

Appendix ICMET 1997 Balance Sheet (as of 12/31/97)
Appendix IICMET 1998 Financial Statements (for the 6 months ended 6/30/98)
Appendix IIITCI 1997 Balance Sheet (as of 12/31/97)
Appendix IVTCI 1998 Financial Statements (for the 6 months ended 6/30/98)

iii
<PAGE>

AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of November
18, 1998, is by and between Transcontinental Realty Investors, Inc., a Nevada
corporation ("TCI"and sometimes the "Surviving Corporation"), and Continental
Mortgage and Equity Trust, a California business trust ("CMET").

INTRODUCTORY STATEMENTS

CMET desires to incorporate as a California corporation to be named
Continental Mortgage and Equity Corporation ("CME Corporation") under the
General Corporation Law of the State of California (the "California Law") (the
"Incorporation").

TCI and CMET desire to effect, immediately following the Incorporation, the
merger of CME Corporation with TCI, with TCI as the surviving corporation,
pursuant to the terms hereof (the "Merger").

Accordingly, for and in consideration of the foregoing and the mutual
agreements, representations, warranties, covenants and conditions herein set
forth, and other good, valid and binding consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby agree as follows:

ARTICLE I

THE INCORPORATION AND THE MERGER

SECTION 1.01. The Incorporation. Upon the terms and subject to the
conditions hereof, the Incorporation shall be consummated in accordance with
the Second Amended and Restated Declaration of Trust of CMET (the "Declaration
of Trust") as soon as practicable following the satisfaction or waiver of the
conditions set forth in Article VI hereof and immediately before the Merger.
Immediately before the Effective Time (as hereinafter defined) and subject to
and upon the terms and conditions of this Agreement and the Declaration of
Trust, CMET shall file Articles of Incorporation pursuant to Section 200.5 of
the California Law, pursuant to which each outstanding share of beneficial
interest, no par value, (the "CMET Common Stock") of CMET shall become, without
any additional action of any shareholder of CMET, one fully paid, non-
assessable share of the common stock of CME Corporation (the "Common Shares").

SECTION 1.02. The Merger. Upon the terms and subject to the conditions
hereof, the Merger shall be consummated in accordance with the law of the State
of Nevada (the "Nevada Law") and the California Law as soon as practicable
following the satisfaction or waiver of the conditions set forth in Article VI
hereof and immediately following the Incorporation. At the Effective Time and
subject to and upon the terms and conditions of this Agreement and the Nevada
Law and the California Law, CME Corporation shall be merged with and into TCI,
the separate corporate existence of CME Corporation shall cease, and TCI shall
continue as the Surviving Corporation.

SECTION 1.03. Effective Time. As promptly as practicable after the
satisfaction or waiver of the conditions set forth in Article VI hereof, the
parties hereto shall cause the Merger to be consummated by filing articles of
merger with the Secretary of State of the State of Nevada and the documents
required by Section 1108 of the California Law with the Secretary of State of
the State of California, in such form as required by, and executed in
accordance with, the relevant provisions of the Nevada Law and California Law.
The Merger shall become effective upon the later of the date and time at which
the articles of merger are successfully filed with the Secretary of State of
the State of Nevada and the filing of the documents required by Section 1108 of
the California Law with the Secretary of State of the State of California (the
"Effective Time").

SECTION 1.04. Effect of the Merger. At the Effective Time, the effect of the
Merger in Nevada shall be as provided in Section 92A.250 of the Nevada Law.

B-1
<PAGE>

SECTION 1.05. Articles of Incorporation; Bylaws.

(a) At the Effective Time, the Articles of Incorporation of TCI shall become
the Articles of Incorporation of the Surviving Corporation.

(b) The Bylaws of TCI shall become the Bylaws of the Surviving Corporation.

SECTION 1.06. Directors and Officers.

(a) The directors of TCI at the Effective Time shall, from and after the
Effective Time, be the directors of the Surviving Corporation until their
successors have been duly elected or appointed and qualified or until their
sooner death, resignation or removal in accordance with the Articles of
Incorporation and the Bylaws.

(b) The officers of TCI at the Effective Time shall, from and after the
Effective Time, be the officers of the Surviving Corporation until their
successors have been duly elected or appointed and qualified.

SECTION 1.07. Additional Actions. If, at any time after the Effective Time,
the Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances, or any other actions or things are necessary or
desirable to vest, perfect or confirm, of record or otherwise, in the Surviving
Corporation its right, title or interest in, to or under any of the Trust
Estate which is to become the assets and property of the Surviving Corporation
as a result of, or in connection with, the Incorporation or the Merger or
otherwise to carry out this Agreement, the officers and directors of the
Surviving Corporation shall be authorized to execute and deliver, in the name
and on behalf of CMET and/or CME Corporation, all such deeds, bills of sale,
assignments and assurances and to take and do, in the name and on behalf of
CMET and/or CME Corporation, or otherwise, all such other actions and things as
may be necessary or desirable to vest, perfect or confirm any and all right,
title and interest in, to and under such rights, properties or assets in the
Surviving Corporation or otherwise to carry out this Agreement.

SECTION 1.08. Conversion of Common Shares. At the Effective Time, by virtue
of the Merger and without any action on the part of TCI, CMET, CME Corporation
or any holders of any of the securities of either of these entities:

(a) Each Common Share shall be canceled and converted into the right to
receive 1.181 (the "Merger Consideration") shares of common stock, par
value $0.01 per share, of TCI ("TCI Common Stock"). The number of shares of
TCI Common Stock to be issued in the Merger shall be appropriately adjusted
to reflect the effect of any stock split, reverse stock split, stock
dividend, reorganization, recapitalization or other like change with
respect to the TCI Common Stock, CMET Common Stock or Common Shares
occurring after the date hereof and prior to the Effective Time.

(b) Each Common Share, if any, held in the treasury of CME Corporation
shall be canceled and extinguished and no payment or other consideration
shall be made with respect thereto.

(c) From and after the Effective Time, all Common Shares (or CMET Common
Stock, the certificates of which have not been exchanged for certificates
representing Common Shares) outstanding immediately prior to the Effective
Time shall cease to be outstanding and shall be canceled and retired and
shall cease to exist, and each holder of a certificate (a "Certificate")
representing any Common Share (or CMET Common Stock) shall thereafter cease
to have any rights with respect to such Common Share, except the right to
receive, without interest, the TCI Common Stock into which such Common
Shares were converted and cash in lieu of fractional shares of TCI Common
Stock upon the surrender of such Certificate, except as provided otherwise
by Law (as defined in Section 3.18, below). Each share of TCI Common Stock
issued in connection with the Merger will be duly authorized, validly
issued, fully paid and nonassessable and free of preemptive rights.

(d) At the Effective Time, the stock transfer books of CMET and CME
Corporation shall be closed and there shall be no further registration of
transfers of the CMET Common Stock or the Common Shares

B-2
<PAGE>

issued prior to the Merger on the records of the Surviving Corporation. If,
after the Effective Time, certificates for Common Shares (or CMET Common
Stock) are presented to the Surviving Corporation, they shall be entitled
only to be exchanged for the number of shares of TCI Common Stock (and cash
in lieu of fractional shares of TCI Common Stock) into which such Common
Shares were converted pursuant to Section 1.08(a).

(e) For federal income tax purposes, it is intended that the
Incorporation and the Merger shall qualify as a reorganization within the
meaning of Section 368(a)(1) of the Internal Revenue Code of 1986, as
amended (the "Code").

SECTION 1.09. Exchange Procedure.

(a) As of the Effective Time, TCI shall deposit, or shall cause to be
deposited, with an exchange agent selected by TCI, which shall be reasonably
satisfactory to CMET (the "Exchange Agent"), for the benefit of the holders of
Common Shares, for exchange in accordance with this Article I, certificates
representing the Merger Consideration (other than fractional shares), cash in
lieu of fractional shares of the Merger Consideration to be issued pursuant to
Section 1.08 and paid pursuant to this Section 1.09 in exchange for outstanding
Common Shares, and dividends and other distributions on the Merger
Consideration contemplated by Section 1.09(c).

(b) Promptly after the Effective Time, TCI shall cause the Exchange Agent to
mail to each holder of record of a Certificate or Certificates (i) a letter of
transmittal which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such
other provisions as TCI may reasonably specify and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for certificates
representing the Merger Consideration (other than fractional shares), cash in
lieu of fractional shares of the Merger Consideration, and dividends and other
distributions on the Merger Consideration contemplated by Section 1.09(c). Upon
surrender of a Certificate for cancellation to the Exchange Agent together with
such letter of transmittal, duly executed and completed in accordance with the
instructions thereto, the holder of such Certificate shall be entitled to
receive in exchange therefor (x) certificates representing the number of whole
shares of the Merger Consideration and (y) a check representing the amount of
cash in lieu of fractional shares of the Merger Consideration, if any, and
unpaid dividends and distributions, if any, which such holder has the right to
receive in respect of the Certificate surrendered pursuant to the provisions of
this Article I, after giving effect to any required withholding tax, and the
Certificate so surrendered shall forthwith be canceled. No interest will be
paid or accrued on the cash in lieu of fractional shares of the Merger
Consideration and dividends and distributions on the Merger Consideration
contemplated by Section 1.09(c) hereto payable to holders of Certificates. In
the event of a transfer of ownership of CMET Common Stock or Common Shares
which is not registered in the transfer records of CMET or CME Corporation,
respectively, certificates representing the proper number of shares of the
Merger Consideration, together with a check for the cash to be paid in lieu of
fractional shares of the Merger Consideration and dividends and distributions
on the Merger Consideration contemplated by Section 1.09(c) hereof, may be
issued to such a transferee if the Certificate representing such CMET Common
Stock or Common Shares is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and to evidence that
any applicable stock transfer taxes have been paid. Notwithstanding any other
provision of this Agreement, the letter of transmittal referred to above will,
at CMET's election, provide for the ability of a holder of one or more
Certificates to elect that shares of TCI Common Stock to be received in
exchange for the CMET Common Stock or Common Shares formerly represented by
such surrendered Certificates be credited to an appropriate book entry account
or, as applicable, an account established for the holder under the dividend
reinvestment plan of TCI.

(c) Notwithstanding any other provisions of this Agreement, no dividends or
other distributions on the Merger Consideration with a record date after the
Effective Time shall be paid with respect to any Common Shares represented by a
Certificate until such Certificate is surrendered for exchange as provided
herein. Subject to the effect of applicable laws, following surrender of any
such Certificate, there shall be paid to the

B-3
<PAGE>

holder of the certificates representing whole shares of the Merger
Consideration issued in exchange therefor, without interest, (i) at the time of
such surrender, the amount of dividends or other distributions with a record
date after the Effective Time theretofore payable with respect to such whole
shares of the Merger Consideration, less the amount of any withholding taxes
which may be required thereon, and (ii) at the appropriate payment date, the
amount of dividends or other distributions with a record date after the
Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such whole shares of the Merger
Consideration, less the amount of any withholding taxes which may be required
thereon.

(d) If, after the Effective Time, Certificates are presented to the
Surviving Corporation, they shall be canceled and exchanged for certificates
for the Merger Consideration and cash in lieu of fractional shares, if any, of
the Merger Consideration, and unpaid dividends and distributions on the Merger
Consideration deliverable in respect thereof pursuant to this Agreement in
accordance with the procedures set forth in this Article I. Appropriate
procedures shall be established by TCI and the Exchange Agent so that each
holder of a Certificate at the Effective Time shall be entitled to vote on all
matters subject to the vote of holders of TCI Common Stock with a record date
on or after the date of the Effective Time, whether or not such Certificate
holder shall have surrendered Certificates in accordance with the provisions of
this Agreement. For purposes of the immediate foregoing sentence, TCI may rely
conclusively on the shareholder records of CMET (and CME Corporation) in
determining the identity of and the number of CMET Common Stock or Common
Shares held by each holder of a Certificate at the Effective Time.

(e) No fractional shares of the Merger Consideration shall be issued
pursuant hereto. In lieu of the issuance of any fractional shares of the Merger
Consideration pursuant to Section 1.09(b), cash adjustments will be paid to
holders in respect of any fractional shares of the Merger Consideration that
would otherwise be issuable (after taking into account all shares held by each
record or beneficial owner of the Merger Consideration), and the amount of such
cash adjustment shall be equal to such fractional proportion of the closing
sale prices of the TCI Common Stock on the New York Stock Exchange ("NYSE") as
reported in The Wall Street Journal, or, if not reported thereby, by another
authoritative source, on the trading day on which the Effective Time occurs.

(f) Any portion of the Merger Consideration held by the Exchange Agent
(together with any cash in lieu of fractional shares of the Merger
Consideration and the proceeds of any investments thereof) that remains
unclaimed by the former shareholders of CME Corporation one year after the
Effective Time shall be delivered to TCI. Any former shareholders of CME
Corporation who have not theretofore complied with this Section 1.09 shall
thereafter look only to TCI for payment of their shares constituting the Merger
Consideration, cash in lieu of fractional shares of the Merger Consideration
and dividends and other distributions on the Merger Consideration contemplated
by Section 1.09(c), in each case, without any interest thereon.

(g) None of TCI, CMET, CME Corporation, the Exchange Agent or any other
person shall be liable to any former holder of CMET Common Stock or Common
Shares for any amount properly delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.

(h) In the event any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and, if required by TCI, the
posting by such person of a bond in such reasonable amount as TCI may direct as
indemnity against any claim that may be made against it with respect to such
Certificate, the Exchange Agent or TCI will issue in exchange for such lost,
stolen or destroyed Certificate the Merger Consideration and cash in lieu of
fractional shares and unpaid dividends and distributions on shares of the
Merger Consideration as provided in this Section 1.09, deliverable in respect
thereof pursuant to this Agreement.

SECTION 1.10. Dissenting Shares. Notwithstanding any other provisions of
this Agreement to the contrary, but solely if required by Section 1300 of the
California Law or other applicable Law (if any), shares of CMET Common Stock
outstanding immediately prior to the Effective Time which are held by
shareholders (i) who shall have not voted in favor of the Merger or consented
thereto in writing and (ii) who shall have

B-4
<PAGE>

demanded properly an appraisal for such shares in accordance with California
Law (collectively, the "Dissenting Shares") shall not be converted into or
represent the right to receive the Merger Consideration. Such shareholders
instead shall be entitled to receive payment of the appraised value of such
shares of CMET Common Stock held by them in accordance with the provisions of
California Law, except that all Dissenting Shares held by shareholders who
shall have failed to perfect or who effectively shall have withdrawn or
otherwise lost their rights to appraisal of such shares of CMET Common Stock
under California Law shall thereupon be deemed to have been converted into and
to have become exchangeable, as of the Effective Time, for the right to
receive, without any interest thereon, the Merger Consideration upon surrender
in the manner provided in Section 1.09, of the Certificate or Certificates that
immediately prior to the Effective Time, evidenced such shares of CMET Common
Stock.

ARTICLE II

CLOSING

SECTION 2.01. Closing. On the terms and subject to the conditions of this
Agreement, and provided that this Agreement has not been terminated under
Article VII hereof, the closing of the Merger (the "Closing") shall take place
(a) at the offices of Andrews & Kurth L.L.P. in Dallas, Texas, at 10:00 a.m.,
local time, on the third business day immediately following the day on which
the condition set forth in Section 6.01(j) has been satisfied, provided that if
all the other conditions set forth in Article VI are not then fulfilled or
waived on such third business day, the Closing shall be automatically extended
from time to time until the first subsequent business day on which all such
conditions are so fulfilled or waived, subject however, to Article VII hereof,
or (b) at such other time, date or place as CMET and TCI may agree. The date on
which the Closing occurs is hereinafter referred to as the "Closing Date." As
used herein, "business day" shall mean a day on which banks are not required or
authorized to close in Dallas, Texas.

SECTION 2.02. Deliveries by CMET to TCI. At the Closing, CMET shall deliver,
or cause to be delivered, to TCI (unless delivered previously) the following:

(a) the Officers' certificates referred to in Section 6.01(e) hereof;

(b) the Certificates of the Secretary of CMET and CME Corporation
referred to in Section 6.01(f) hereof;

(d) all other previously undelivered documents, instruments and writings
required to be delivered by CMET (and/or CME Corporation) to TCI at or
prior to the Closing pursuant to this Agreement or otherwise required in
connection herewith.

SECTION 2.03. Deliveries by TCI to CMET (and/or CME Corporation). At the
Closing, TCI shall deliver, or cause to be delivered, to CMET (unless delivered
previously) and/or CME Corporation the following:

(a) the Officers' Certificate referred to in Section 6.02(e) hereof;

(b) the Secretary's Certificate referred to in Section 6.02(f) hereof;

(d) all other previously undelivered documents, instruments and writings
required to be delivered by TCI to CMET and/or CME Corporation at or prior
to the Closing pursuant to this Agreement or otherwise required in
connection herewith.

B-5
<PAGE>

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF CMET

CMET hereby represents and warrants to TCI as follows, except as otherwise
set forth in the relevant section of the disclosure schedule of CMET (the "CMET
Disclosure Schedule"):

SECTION 3.01. Organization and Qualification of CMET. CMET is (a) a business
trust duly organized, validly existing and in good standing under the laws of
the State of California and (b) duly qualified to do business as a foreign
business trust and in good standing in each jurisdiction in which the character
of the properties and assets now owned or leased by it or the nature of the
business transacted by it requires it to be so qualified, except where the
failure to be so qualified, individually or in the aggregate, would not have a
Material Adverse Effect (as defined herein) upon CMET or the consummation of
the transactions contemplated hereby. Each jurisdiction in which CMET is
qualified to do business is listed in Section 3.01 of the CMET Disclosure
Schedule. No jurisdiction in which CMET is not qualified or licensed has
claimed, in writing or otherwise, that CMET is required to qualify or be
licensed therein.

SECTION 3.02. Power and Capacity; Charter Documents of CMET.

(a) CMET has all requisite power and authority to enter into, execute and
deliver this Agreement and, upon requisite approval of the Incorporation and
the Merger by the shareholders of CMET, to perform its obligations hereunder.
CMET has the power and authority to carry on its business as now being
conducted and to own and lease its properties. This Agreement has been duly
executed and delivered by CMET and is a valid and binding obligation of CMET,
enforceable in accordance with its terms, except to the extent that such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other laws affecting the enforcement of creditors' rights
generally or by general equitable principles.

(b) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby by CMET will not result in
a violation or breach of or constitute a default under any term or provision of
the Declaration of Trust or the Restated Trustees' Regulations of CMET (the
"Trust Regulations"). CMET has made available to TCI true and complete copies
of the Declaration of Trust and Trust Regulations, as in effect on the date
hereof, and the minute books of CMET for the last five years. Such minute books
are accurate and complete in all material respects and contain the minutes of
all meetings (and written consents in lieu thereof) of the shareholders and the
board of trustees (and all committees thereof) of CMET held during the five
years immediately preceding the date of this Agreement. All actions taken at
such meetings were appropriately passed or ratified.

SECTION 3.03. Subsidiaries. Section 3.03 of the CMET Disclosure Schedule
lists all other corporations, partnerships and other entities in which CMET
owns, beneficially or of record, shares or interests, and identifies all joint
ventures, corporate alliance agreements or corporate partnering agreements to
which CMET is a party. CMET does not have an interest in, or is subject to, any
agreement, obligation or commitment to make any equity investment in or loan or
advance to, any other any corporation, association, partnership, organization,
business, individual, government or political subdivision thereof or government
agency (collectively, a "Person").

SECTION 3.04. Capitalization and Ownership of CMET. Section 3.04 of the CMET
Disclosure Schedule lists, for CMET, its authorized capitalization, the number
of shares of beneficial interest of CMET (or other equity interests) issued and
outstanding, and, to the knowledge of CMET, the number of shares of beneficial
interest (or other equity interests) owned of record by each shareholder owning
more than five percent of the issued and outstanding shares of beneficial
interest as of the date set forth in the CMET Disclosure Schedule. All of the
outstanding shares of CMET Common Stock are validly issued, fully paid and non-
assessable and were not issued in violation of any preemptive rights or any
applicable Law. All shares of CMET Common Stock are owned free and clear of any
lien, claim or encumbrance of any type whatsoever imposed by CMET. There are no
outstanding options, warrants or other rights to acquire any shares of CMET

B-6
<PAGE>

Common Stock, and there are no outstanding securities authorized, granted or
issued by CMET that are convertible into or exchangeable for shares of CMET
Common Stock, and there are no phantom stock rights, stock appreciation rights
or similar rights regarding CMET. There are no rights of any Person to have
CMET repurchase any shares of CMET Common Stock.

SECTION 3.05. No Conflicts. The execution, delivery and performance of this
Agreement by CMET and the consummation of the transactions contemplated hereby
will not:

(a) result in the creation or imposition of any security interest, lien,
charge or other encumbrance against the Trust Estate, with or without the
giving of notice and/or the passage of time, or

(b) violate, affect acceleration of, or result in termination,
cancellation or modification of, or constitute a default under (i) any
contract, agreement or other instrument to which CMET is a party or by
which CMET or its assets is bound or (ii) any note, bond, mortgage,
indenture, deed of trust, license, lease, contract, commitment,
understanding, arrangement, agreement or restriction of any kind or
character to which CMET is a party or by which CMET may be bound or
affected, or to which any of the Trust Estate may be subject, or

which violation, acceleration, requirement, termination, modification or
default described in (a), (b), or (c), above, could reasonably be expected to
result in a Material Adverse Effect on CMET or the transactions contemplated by
this Agreement.

SECTION 3.06. Consents and Approvals. Except for (i) the filing with the
Securities and Exchange Commission (the "Commission") of proxy material
regarding the Incorporation and the Merger and the related vote of CMET's
shareholders, (ii) the filing of Articles of Incorporation of CME Corporation
to effect the Incorporation, and (iii) any required filing pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act (the "HSR Act"), CMET is not
required to obtain, transfer or cause to be transferred any consent, approval,
license, permit or authorization of, or make any declaration, filing or
registration with, any third party or any public body or authority in
connection with (x) the execution and delivery by CMET of this Agreement, (y)
the consummation of the Incorporation, the Merger and the other transactions
contemplated hereby or (z) the conduct by the Surviving Corporation of the
business of CMET (the "CMET Business").

SECTION 3.07. Financial and Operating Statements.

(a) CMET 1997 Financial Statements. Attached hereto as Appendix I is a true
and complete copy of the audited balance sheet of CMET as of December 31, 1997
(the "CMET 1997 Balance Sheet"), together with related statements of
operations, equity and cash flow of CMET (and notes thereto) for such period
(collectively, the "CMET 1997 Financial Statements"). The CMET 1997 Financial
Statements fairly present the consolidated financial position and the results
of operations of CMET for the period therein identified in conformity with
generally accepted accounting principles ("GAAP") consistently applied.

(b) CMET 1998 Financial Statements. Attached hereto as Appendix II is a true
and complete copy of the unaudited consolidated financial statements of CMET
for the six months ended June 30, 1998 (the "CMET 1998 Financial Statements",
which CMET 1998 Financial Statements include an unaudited consolidated balance
sheet of CMET as of June 30,1998 (the "CMET 1998 Balance Sheet")). The CMET
1998 Financial Statements fairly present the financial position and results of
operations of CMET for the period therein identified, except that the CMET 1998
Financial Statements do not include notes or normal year end adjustments.

(c) Accounting Records. CMET (i) keeps books, records and accounts that, in
reasonable detail, accurately and fairly reflect the transactions, dispositions
and assets of CMET and (ii) maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (A) transactions are executed
in accordance with the management's general or specific authorization, and (B)
transactions are recorded as

B-7
<PAGE>

necessary to permit preparation of financial statements in conformity with GAAP
and to maintain accountability for assets and (C) access to such books, records
and accounts is permitted only in accordance with management's general or
specific authorizations.

SECTION 3.08. No Material Undisclosed or Contingent Liabilities. Except for
(a) liabilities or obligations incurred by CMET in the ordinary course of
business and not required by GAAP to be set forth on the CMET 1998 Balance
Sheet (all of which items, to the extent material (individually or in
aggregate), are described in Section 3.08 of the CMET Disclosure Schedule), and
(b) liabilities and obligations incurred by CMET in the ordinary course of
business since the date of the CMET 1998 Balance Sheet (none of which could
reasonably be expected to cause a Material Adverse Effect on CMET), to the best
knowledge of CMET, there is no basis for the assertion against CMET of any
liability or obligation of any nature whatsoever (whether absolute, accrued,
contingent or otherwise) that may materially encumber or affect CMET or the
transactions contemplated hereby which is not fully reflected or reserved
against on the CMET 1998 Balance Sheet.

SECTION 3.09. Assets of CMET. The material assets of CMET (collectively, the
"Trust Estate") include the assets referenced below (for purposes of this
Section 3.09, Section 3.10, Section 3.11, Section 3.13 and Section 3.14,
"material" shall refer to items capable of producing a monetary effect of at
least $1,000,000 on the business, operations, properties, condition, assets,
obligations or liabilities of CMET and its subsidiaries taken as a whole; the
fact that any asset is listed or otherwise described below or in the CMET
Disclosure Schedule is not, and shall not be interpreted to be, evidence that
such asset is a "material" asset of CMET):

(a) Receivables. All material accounts receivable, bills and notes
receivable, commercial paper and acceptances or any other evidences of
indebtedness to CMET including, without limitation, those items listed in
Section 3.09(a) of the CMET Disclosure Schedule;

(b) Company Equipment. All material furniture, fixtures and equipment of
CMET (the "CMET Equipment") including, without limitation, those items
listed in Section 3.09(b) of the CMET Disclosure Schedule, whether or not
such items are in any way attached or affixed to real property;

(c) Contracts. All material leases (other than residential leases on
apartment properties), contracts, agreements, arrangements, commitments and
understandings (whether written or oral), including, without limitation,
all mortgages, leases, security deposits and options under leases,
acquisition agreements, confidentiality agreements and deferred
compensation agreements (collectively, "Contracts"), to which CMET is a
party, including, without limitation, all such contracts listed or referred
to in Section 3.09(c) of the CMET Disclosure Schedule;

(d) Insurance. All insurance policies covering CMET, its properties or
equipment, and its trustees, officers and agents (and all rights and claims
thereunder for damage to, or otherwise relating to, the Trust Estate),
including, without limitation, those items listed in Section 3.09(d) of the
CMET Disclosure Schedule;

(e) Permits. All material licenses, permits and authorizations issued by
any federal, state, local or foreign governmental authority (the "Permits")
relating to CMET, the Trust Estate or the conduct of the CMET Business,
including, without limitation, those items listed in Section 3.09(e) of the
CMET Disclosure Schedule;

(f) Real Property. Any and all fee and leasehold interests of CMET as
lessee regarding any of its real property (collectively, the "CMET
Properties") described and listed in Section 3.09(f) of the CMET Disclosure
Schedule; and

(g) Miscellaneous. Any and all other material property, real, personal,
or otherwise, tangible or intangible, which is owned or held by the CMET or
the trustees of CMET, including, but not limited to, property which is
transferred, conveyed, or paid to CMET or the trustees of CMET, and all
rents, income, profits, and gains therefrom.

B-8
<PAGE>

SECTION 3.10. Absence of Certain Changes. Since December 31, 1997, except as
set forth in the CMET Disclosure Schedule or the CMET SEC Reports (as defined
in Section 3.17, below), CMET has not:

(a) suffered any Material Adverse Effect and there has not been any
event, whether occurring before or after December 31, 1997, that could
reasonably be expected to have a Material Adverse Effect on CMET; or

(b) experienced any material decrease in the book value of the Trust
Estate from the amounts reflected on the CMET 1997 Balance Sheet, other
than decreases resulting from depreciation in accordance with accounting
practices in effect at all times since January 1, 1997; or

(c) incurred any material liabilities or obligations of any nature,
whether absolute, accrued, contingent or otherwise and whether due or to
become due, except (i) liabilities or obligations for rent under the CMET
Leases (as defined herein), (ii) liabilities or obligations for other items
incurred in the ordinary course of business of CMET and consistent with
past practice, none of which other items exceeds $1,000,000, considering
liabilities or obligations arising from one transaction or a series of
similar transactions, and all periodic installments or payments under any
lease (other than the CMET Leases) or other agreement providing for
periodic installments or payments, as a single obligation or liability, and
(iii) loans in connection with acquisitions of assets in the ordinary
course of business or refinancing of existing loans; or

(d) increased (other than increases resulting from the calculation of
reserves in the ordinary course of business and in a manner consistent with
past practice), or experienced any change in any assumptions underlying or
methods of calculating, any bad debt, contingency or other reserves; or

(e) paid, discharged or satisfied any claims, encumbrances, liabilities
or obligations (whether absolute, accrued, contingent or otherwise and
whether due or to become due) other than the payment, discharge or
satisfaction in the ordinary course of business and consistent with past
practice of liabilities and obligations reflected or reserved against in
the CMET 1997 Balance Sheet or incurred in the ordinary course of business
and consistent with past practice since the date thereof; or

(f) permitted, allowed or suffered any of the Trust Estate, including,
without limitation, real property, personal property or any leasehold
interest, to be subjected to any mortgage, pledge, lien, encumbrance,
restriction or charge of any kind, except for liens for Taxes (as defined
herein) not yet owing or in connection with any refinancing in the ordinary
course of business; or

(g) determined as collectible any notes or accounts receivable or any
portion thereof which were previously considered uncollectible, or written
off as uncollectible any notes or accounts receivable or any portion
thereof, except for write-downs in the ordinary course of business,
consistent with past practice in accordance with GAAP consistently applied;
or

(h) canceled any amount of indebtedness or waived any claims or rights;
or

(i) sold, transferred or otherwise disposed of any of the Trust Estate
except in the ordinary course of business and consistent with past
practice; or

(j) granted any increase in the salary, compensation, rate of
compensation, commissions or bonuses payable to or to become payable by
CMET to any officer or trustee of CMET (including, without limitation, any
increase or change pursuant to any bonus, pension, profit-sharing or other
plan or commitment or any grant of severance, change of control or other
"golden parachute" benefits), except in the ordinary course of business and
consistent with past practice; or

(k) paid, loaned or advanced any amount to any officer, trustee or
shareholder of CMET except for amounts advanced to trustees or officers of
CMET in the ordinary course of business consistent with past practice for
out-of-pocket expenses in connection with travel; or

(l) sold, transferred or leased any of the Trust Estate to, or entered
into any agreement or arrangement with, any officer, trustee or shareholder
of CMET; or

B-9
<PAGE>

(m) made aggregate capital expenditures or commitments in excess of
$1,000,000 for additions to property, plant, equipment or for any other
purpose, other than the acquisition of real property or interests in real
property in the ordinary course of business; or

(n) made any change in any method of accounting or accounting practice
or policy; or

(o) suffered aggregate casualty losses in excess of $1,000,000 (whether
or not insured against); or

(p) issued any additional shares of CMET Common Stock or any option,
warrant, right or other security exercisable for, convertible into or
exchangeable for shares of CMET Common Stock; or

(q) paid dividends on or made other distributions or payments in respect
of the shares of CMET Common Stock, other than regular quarterly dividends;
or

(r) taken any other action not either in the ordinary course of business
and consistent with past practice or provided for in this Agreement; or

(s) paid any advisory, consulting or similar fees to any Person except
in the ordinary course of business and pursuant to the Advisory Agreement
between CMET and Basic Capital Management, Inc. ("Basic"); or

(t) agreed (other than with respect to the transactions contemplated by
this Agreement), whether in writing or otherwise, to take any of the
actions set forth in this Section 3.10.

SECTION 3.11. Real Property.

(a) Set forth in Section 3.11 of the CMET Disclosure Schedule is a complete
list of all real property that CMET currently owns. CMET has good and
indefeasible title in fee simple to such currently owned real property and to
all buildings and improvements thereon, free and clear of any mortgages,
liens, claims, charges, pledges, security interests or other encumbrances of
any nature whatsoever ("Encumbrances"), other than those Encumbrances
described in the CMET SEC Reports.

(b) To the best knowledge of CMET, with respect to any deeds, title
insurance policies, surveys, mortgages, agreements and other documents
granting to CMET title to or an interest in or otherwise affecting any such
real property, (i) no material breach or event of default on the part of CMET,
(ii) no material breach or event of default, on the part of any other party
thereto, and (iii) no event that, with the giving of notice or lapse of time
or both, would constitute such material breach or event of default on the part
of CMET or on the part of any other party thereto, has occurred and is
continuing.

(c) Section 3.11 of the CMET Disclosure Schedule contains a complete and
accurate list of all of CMET's material leasehold interests as lessee in real
property (collectively, "CMET Leases") (including all amendments thereof and
modifications thereto). CMET's interests in and to all CMET Leases are free
and clear of all material mortgages, liens, claims, charges, pledges, security
interests or other encumbrances of any nature whatsoever. CMET has not
received notice of any default by CMET under any of the CMET Leases, and there
are no facts or conditions that would, with notice or lapse of time or both,
constitute a default by CMET under any of the CMET Leases. To the best
knowledge of CMET, none of the landlords under any of the CMET Leases is in
default.

(d) The buildings and improvements owned or leased by CMET on any real
property owned by CMET and on any CMET Lease, and the operation and
maintenance thereof as operated and maintained, do not materially (i)
contravene any zoning or building Law or ordinance or other administrative
regulation or (ii) violate any restrictive covenant or any applicable Law. All
of the plants, buildings and structures located on any real property owned by
CMET or on any CMET Lease are in a state of good maintenance and repair
(normal wear and tear excepted) suitable in all material respects for the
operation of the CMET Business.

(e) There is no material pending or, to the best knowledge of CMET,
threatened condemnation, eminent domain or similar proceeding with respect to,
or that could reasonably be expected to affect, any real property owned by
CMET or any CMET Lease.

B-10
<PAGE>

SECTION 3.12. CMET Equipment. CMET has good and valid title to each piece of
CMET Equipment, except for those pieces of CMET Equipment that have been
disposed of in the ordinary course of business since December 31, 1997 without
violation of the terms of Section 6.01 hereof. Taken as a whole, the CMET
Equipment is (and, to the knowledge of CMET, all pieces of the CMET Equipment
are) in good and normal operating condition and repair (ordinary wear and tear
excepted) and adequate for the uses to which it is being put by CMET. CMET has
not received any notification from any governmental or regulatory authority
that CMET is in current violation of any health, sanitation, fire, safety,
zoning, building or other Law (provided that this Section does not cover
Environmental Laws, which are addressed more particularly in Section 3.20),
ordinance or regulation in respect of the CMET Equipment or operations, which
violation has not been or is not in the process of being appropriately
resolved.

SECTION 3.13. Contracts and Commitments.

(a) All material contracts, agreements and commitments to which CMET is a
party or is bound (and which provide for payment by CMET or receipt by CMET of
more than $1,000,000 over the life of the contract, agreement or commitment or
which are otherwise material to CMET) are listed in Section 3.13(a) of the CMET
Disclosure Schedule.

(b) CMET is not a party to or bound by any agreements, contracts or
commitments which individually or when aggregated with all related agreements,
contracts or commitments, provide for the grant of any material preferential
rights to purchase or lease any of the Trust Estate, except as described in
Section 3.13(b) of the CMET Disclosure Schedule.

(c) CMET has delivered or made available to TCI true and complete copies of
each written agreement, contract or commitment listed in Section 3.13(a) of the
CMET Disclosure Schedule, as well as true and accurate summaries of any oral
agreement listed thereon.

(d) The enforceability of the material agreements, contracts and commitments
referred to in this Section 3.13 will not be affected in any respect by the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.

(e) CMET is not a party to or bound by any outstanding agreements,
arrangements or contracts with any of its officers, shareholders, trustees,
agents, consultants or advisors (or any affiliates of such Persons) that
(i) are not cancelable by it on notice of not longer than 30 days and without
the imposition of any liability, penalty or premium, (ii) require non-
cancelable payment by CMET of over $1,000,000, or (iii) provide for any bonus
or other payment based on the sale of CMET or the Trust Estate or any portion
thereof.

(f) CMET is not a party to or bound by any agreement that contains any
provision for severance or termination pay liabilities or obligations
(including, without limitation, change of control or "golden parachute"
provisions).

(g) CMET is not a party to or bound by:

(i) any mortgage, indenture, note, installment obligation or other
instrument, agreement or arrangement for or relating to any borrowing of
money by CMET, other than as described in the CMET SEC Reports or the CMET
Disclosure Schedule;

(ii) any guaranty, direct or indirect, by CMET of any obligation for
borrowings or otherwise, excluding endorsements made for collection in the
ordinary course of business, other than guaranties of obligations of
subsidiaries of CMET described in Section 3.03 of the CMET Disclosure
Schedule;

(iii) any obligation to make payments, contingent or otherwise, of over
$1,000,000 in the aggregate arising out of any prior acquisition of the
business, assets or stock of other persons, other than in the ordinary
course of business;

B-11
<PAGE>

(iv) any agreement containing noncompetition or other limitations
restricting the conduct of the CMET Business; and

(v) any partnership, joint venture or similar agreement, other than in
connection with any ownership of any real property described in Section
3.09 of the CMET Disclosure Schedule by any entity described in Section
3.01 of the CMET Disclosure Schedule.

(h) Neither CMET nor any of its officers or trustees is a party to or bound
by any agreement or arrangement for the sale of any of the Trust Estate or
shares of CMET Common Stock or for the grant of any preferential rights to
purchase any of the Trust Estate or shares of CMET Common Stock, other than in
the ordinary course of business.

(i) CMET is not bound by any agreement to redeem shares of CMET Common Stock
held by any shareholder, which agreement will not be effectively and properly
terminated by the consummation of the Incorporation and the Merger.

(j) With respect to each material contract and agreement listed in Section
3.13 of the CMET Disclosure Schedule, except as set forth therein, (i) each of
such contracts and agreements is valid, binding and in full force and effect
and is enforceable by CMET in accordance with its terms, subject to bankruptcy,
insolvency, reorganization and other Laws and judicial decisions of general
applicability relating to or affecting creditors' rights and to general
principles of equity; (ii) there have been no cancellations or threatened
cancellations thereof nor are there any outstanding disputes thereunder; (iii)
neither CMET nor, to the best knowledge of CMET, any other party is in breach
of any material provision thereof; and (iv) there does not exist any material
default under, or any event or condition which with the giving of notice or
passage of time or both would become a material breach or default under, the
terms of any such contract or agreement on the part of CMET or, to the best
knowledge of CMET, on the part of any other party thereto.

SECTION 3.14. Litigation. There are no open and unresolved claims, actions,
suits, proceedings, investigations or inquiries that have been made or served
against CMET or, to the best knowledge of CMET, that are pending against
(without having been so served), threatened by or against, or otherwise
affecting or that would adversely affect, the transactions contemplated hereby
at law or in equity or before or by any federal, state, local, foreign or other
governmental department, commission, board, agency, or authority; and no other
such claim, action, suit, proceeding, inquiry or investigation could be brought
against CMET for which valid defenses are not available. No claim, action,
suit, proceeding, inquiry or investigation set forth in Section 3.14 of the
CMET Disclosure Schedule would, if adversely decided, have a Material Adverse
Effect on CMET or the transactions contemplated hereby. CMET is not a party to
or a recipient of service of process regarding (and has not otherwise been
named and noticed in) any judgment, order or decree entered in any lawsuit or
proceeding which has had or may have a Material Adverse Effect on CMET or on
its ability to acquire any property or conduct its business in any way.

SECTION 3.15. Insurance.

(a) All policies of fire, liability, product liability and all other forms
of insurance relating to the CMET Business (the "CMET Insurance Policies") are
in full force and effect.

(b) All billed premiums with respect to the CMET Insurance Policies covering
all periods up to and including the Closing Date have been paid or will be paid
prior to the Closing Date.

(d) The CMET Insurance Policies are sufficient for compliance with all
requirements of Law and of all agreements with respect to the operation of the
CMET Business and are valid, outstanding and enforceable policies (subject to
bankruptcy, insolvency, reorganization and other Laws and judicial decisions of
general applicability relating to or affecting creditors' rights and to general
principles of equity).

B-12
<PAGE>

(e) The coverage provided by the CMET Insurance Policies, with respect to
any insured act or event occurring on or prior to the Closing Date, will not in
any way be affected by or terminate or lapse by reason of the transactions
contemplated hereby.

SECTION 3.16. Employees; Officer and Trustee Compensation.

(a) CMET does not have any employees. CMET does not have any plans or
intentions to hire any employees, nor is CMET currently engaged in any
discussions to hire any employees.

(b) Section 3.16 of the CMET Disclosure Schedule sets forth a complete and
accurate list showing the names, the rate of compensation and the portions
thereof attributable to salary and bonuses, respectively, as well as the
location of all officers and trustees of CMET and of all consultants to CMET
that received annual base compensation and cash bonus payable by CMET totaling
in excess of $75,000 for the fiscal year ended December 31, 1997.

SECTION 3.17. Compliance with Law.

(a) To the best knowledge of CMET, CMET is in compliance in all material
respects with all federal, state, foreign and local laws (whether statutory or
otherwise), ordinances, rules, regulations, orders, judgments, decrees, writs
and injunctions of any governmental authority (collectively, "Laws") applicable
to the CMET Business.

(b) Since December 31, 1997, filings required to be made by CMET under the
Securities Act of 1933, as amended (the "Securities Act") or the Securities
Exchange Act of 1934, as amended (the "Exchange Act") have been filed with the
SEC as required by each such law or regulation, including all forms,
statements, reports, agreements and all documents, exhibits, amendments and
supplements appertaining thereto, and CMET has complied in all material
respects with all applicable requirements of the appropriate act and the rules
and regulations thereunder.

(c) CMET has made available to TCI a true and complete copy of each report,
schedule, registration statement and definitive proxy statement filed by CMET
with the SEC since December 31, 1997 and through the date hereof (such
documents as filed, and any and all amendments thereto (the "CMET SEC
Reports").

(d) The CMET SEC Reports, including without limitation any financial
statements or schedules included therein, at the time filed, and all forms,
reports or other documents filed by CMET with the SEC after the date hereof,
did not and will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.

(e) CMET has not received written notification from any governmental or
regulatory authority within the past five years of any asserted present or past
failure to so comply with Laws, which failure has not been appropriately and
completely resolved.

(f) CMET has not been notified by any governmental or regulatory authority
that CMET is in violation or alleged violation of any Law applicable to the
CMET Business which violation has not been appropriately and completely
resolved, or that any governmental or regulatory authority contemplates any
investigation or proceeding with respect to any such violation or alleged
violation which has not been appropriately and completely resolved.

SECTION 3.18. Material Permits. CMET has all material Permits necessary for
the ownership or leasing of its properties and the conduct of the CMET Business
as now being conducted. All such material Permits are in full force and effect.
No violations exist or, to the best knowledge of CMET, have been reported in
respect of such material Permits. No notice of any proceeding has been served
or otherwise given to CMET or, to the best knowledge of CMET, is pending
(without service or other notice) or threatened seeking the

B-13
<PAGE>

revocation or limitation of any of such material Permits. Section 3.09(e) of
the CMET Disclosure Schedule contains a complete list of all material Permits
of CMET.

SECTION 3.19. Environmental Matters. Except as set forth in the CMET SEC
Reports or in Section 3.19 of the CMET Disclosure Schedule and any
environmental assessment or report listed therein, to the actual knowledge of
the executive officers of CMET: none of CMET, any of its subsidiaries or any
other person has caused or permitted (a) the unlawful presence of any hazardous
substances, hazardous materials, toxic substances or waste materials
(collectively, "Hazardous Materials") on any of the CMET Properties, or (b) any
unlawful spills, releases, discharges or disposal of Hazardous Materials to
have occurred or be presently occurring on or from the CMET Properties, which
presence or occurrence would, individually or in the aggregate, have a Material
Adverse Effect; CMET and its subsidiaries have not failed to comply with all
applicable local, state and federal environmental laws, regulations, ordinances
and administrative and judicial orders relating to the generation, recycling,
reuse, sale, storage, handling, transport and disposal of any Hazardous
Materials or environmental matters or contamination ("Environmental Laws"),
except where the failure to so comply would not reasonably be expected to have
a Material Adverse Effect; and CMET, its assets and businesses and all
operations related thereto are now in compliance with all Environmental Laws
and not subject to any liability, or, with respect to any required remediation,
corrective action or prophylactic or other like action, obligation under any
Environmental Law, except where the failure to comply with any such
Environmental Law would not reasonably be expected to have a Material Adverse
Effect.

SECTION 3.20. Tax Matters.

(a) For purposes of this Agreement, (i) "Tax Return" means any report,
statement, form, return or other document or information required to be
supplied to a taxing authority in connection with Taxes and (ii) "Tax" or
"Taxes" means any United States or foreign federal, state, or local tax,
including, without limitation, income tax, ad valorem tax, excise tax, sales
tax, use tax, franchise tax, gross receipts tax, withholding tax, social
security tax, occupation tax, service tax, license tax, payroll tax, transfer
and recording tax, severance tax, customs tax, import tax, export tax,
employment tax, or any similar or other tax, assessment, duty, fee, levy or
other governmental charge, together with and including, without limitation, any
and all interest, fines, penalties, assessments and additions to tax resulting
from, relating to, or incurred in connection with any such tax or any contest
or dispute thereof.

(b) All Tax Returns required to be filed on or before the Closing Date by
CMET have been or will be filed within the time prescribed by Law (including
extensions of time approved by the appropriate taxing authority). The Tax
Returns so filed are complete, correct and accurate representations of the Tax
liabilities of CMET and such Tax Returns accurately set forth or will
accurately set forth all items to the extent required to be reflected or
included in such returns.

(c) CMET has timely paid or has made adequate provision in the CMET 1997
Balance Sheet for the payment of all Taxes due on such Tax Returns that have
been filed or will be filed for periods ending on or before the date of the
CMET 1997 Balance Sheet.

(d) There is no action, suit, investigation, proceeding, audit or claim that
has been served against or otherwise properly noticed to CMET, or, to the best
knowledge of CMET, pending or proposed against or with respect to CMET in
respect of any Tax. There are no material liens for Taxes upon any of the Trust
Estate.

(e) CMET has withheld and paid all Taxes required to have been withheld and
paid in connection with amounts paid or owing to any creditor, independent
contractor, or other Person.

(f) CMET has not waived any statute of limitations in respect of Taxes or
agreed to any extension of time with respect to a Tax assessment or deficiency.

(g) CMET does not have in effect a consent under Section 341(f) of the Code
concerning collapsible corporations.

B-14
<PAGE>

(h) CMET has not made any payment, and is not obligated to make any payment,
and is not a party to any agreement that could obligate it to make any payment
that will not be deductible under section 280G of the Code or will be subject
to Tax under section 4999 of the Code.

(i) There has never been a Tax sharing or allocation agreement in place
between CMET and any other Person other than those, if any, with respect to
which the applicable statute of limitations has run.

(j) CMET is not liable for a Tax incurred by any other corporation that was
a member of a consolidated group of corporations (within the meaning of
Treasury regulation section 1.1502) that included CMET.

(k) CMET has delivered or made available to TCI correct and complete copies
of all Tax Returns filed by CMET for 1995, 1996 and 1997, all examination
reports, and any statements of deficiencies assessed against or agreed to by
CMET.

(l) Since December 31, 1997, CMET has incurred no liability for Taxes under
Sections 857(b) (other than 857(b)(1) or (3)), 860(c) or 4981 of the Code,
including without limitation, any Tax arising from a prohibited transaction
described in Section 857(b)(6) of the Code, and CMET has not incurred any
liability for Taxes other than in the ordinary course of business.

(m) CMET (i) has elected to be taxed as a REIT commencing December 3, 1980,
(ii) has been subject to taxation as a REIT within the meaning of Section 856
of the Code and has satisfied all requirements to qualify as a REIT for all
taxable years commencing December 3, 1980, through its taxable year ended
December 31, 1997, (iii) has operated since December 31, 1997 to the date of
this representation, and intends to continue to operate, in such a manner so as
to qualify as a REIT for its taxable year ending immediately after the Closing
Date, and (iv) has not taken or omitted to take any action which would
reasonably be expected to result in a challenge to its status as a REIT, and to
the knowledge of the executive officers of CMET, no such challenge is pending
or threatened. CMET represents that each of its corporate subsidiaries is, and
at all times since its affiliation with CMET has qualified as, a qualified REIT
subsidiary as defined in Section 856(i) of the Code, and that each partnership,
limited liability company, joint venture or other legal entity (other than a
corporation) in which CMET (either directly or indirectly) owns any of the
capital stock or other equity interests thereof has been treated since its
formation and continues to be treated for federal income tax purposes as a
partnership or disregarded as an entity separate from its owner and not as an
association taxable as a corporation. CMET has no net unrealized built-in gain
within the meaning of Section 1374(d)(1) of the Code that would be subject to
an election under IRS Notice 88-19 or has any earning and profits accumulated
in any non-REIT year within the meaning of Section 857 of the Code.

SECTION 3.21. Title to Assets. CMET has good, valid and indefeasible title
to the Trust Estate, including, without limitation, those assets set forth on
the CMET 1997 Balance Sheet.

SECTION 3.22. Redemptions of Capital Stock by CMET. There exists no
continuing claim by any former or current shareholder, for money or otherwise,
against CMET regarding any redemptions of its capital stock, and no basis for
any such claim exists.

SECTION 3.23. Bank Accounts. Section 3.23 of the CMET Disclosure Schedule
sets forth the names and locations of all banks, trust companies, savings and
loan associations, stock brokerages and other financial institutions at which
CMET maintains accounts of any nature and the name of all persons authorized to
draw thereon or make withdrawals therefrom.

SECTION 3.24. Brokers. CMET has not employed any broker, finder or similar
agent in connection with the transactions contemplated by this Agreement,
except that CMET has retained Sutro & Co. to render a fairness opinion with
respect to the Merger. Other than the foregoing arrangement, CMET is not aware
of any claim for payment of any finder's fees, brokerage or agent's commissions
or other like payments in connection with the negotiations by CMET leading to
this Agreement or the consummation of the transactions contemplated hereby.

B-15
<PAGE>

SECTION 3.25. Fairness Opinion. CMET has received the opinion of Sutro & Co.
to the effect that, as of September 21, 1998, the Merger Consideration is fair
from a financial point of view to the holders of CMET Common Stock.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF TCI

TCI hereby represents and warrants to CMET and, upon its formation, CME
Corporation as follows, except as otherwise set forth in the relevant section
of the disclosure schedule of TCI (the "TCI Disclosure Schedule"):

SECTION 4.01. Organization and Qualification of TCI. TCI is (a) a
corporation duly organized, validly existing and in good standing under the
laws of the State of Nevada and (b) duly qualified to do business as a foreign
corporation and in good standing in each jurisdiction in which the character of
the properties and assets now owned or leased by it or the nature of the
business transacted by it requires it to be so qualified, except where the
failure to be so qualified, individually or in the aggregate, would not have a
Material Adverse Effect (as defined herein) upon TCI or the consummation of the
transactions contemplated hereby. Each jurisdiction in which TCI is qualified
to do business is listed in Section 4.01 of the TCI Disclosure Schedule. No
jurisdiction in which TCI is not qualified or licensed has claimed, in writing
or otherwise, that TCI is required to qualify or be licensed therein.

SECTION 4.02. Power and Capacity; Charter Documents of TCI.

(a) TCI has all requisite power and authority (corporate and otherwise) to
enter into, execute and deliver this Agreement and, upon requisite approval of
the Merger by the shareholders of TCI, to perform its obligations hereunder.
TCI has the power and authority (corporate and otherwise) to carry on its
business as now being conducted and to own and lease its properties. This
Agreement has been duly executed and delivered by TCI and is a valid and
binding obligation of TCI, enforceable in accordance with its terms, except to
the extent that such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization or other laws affecting the enforcement of
creditors' rights generally or by general equitable principles.

(b) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby by TCI will not result in
a violation or breach of or constitute a default under any term or provision of
the articles of incorporation of TCI or the bylaws of TCI. TCI has made
available to CMET true and complete copies of the minute books of TCI for the
last five years. Such minute books are accurate and complete in all material
respects and contain the minutes of all meetings (and written consents in lieu
thereof) of the shareholders and the board of directors (and all committees
thereof) of TCI held during the five years immediately preceding the date of
this Agreement. All actions taken at such meetings were appropriately passed or
ratified.

SECTION 4.03. Subsidiaries. Section 4.03 of the TCI Disclosure Schedule
lists all other corporations, partnerships and other entities in which TCI
owns, beneficially or of record, shares or interests, and identifies all joint
ventures, corporate alliance agreements or corporate partnering agreements to
which TCI is a party. TCI does not have an interest in, or is subject to, any
agreement, obligation or commitment to make any equity investment in or loan or
advance to, any other Person.

SECTION 4.04. Capitalization and Ownership of TCI. Section 4.04 of the TCI
Disclosure Schedule lists, for TCI, its authorized capitalization, the number
of shares of capital stock of TCI (or other equity interests) issued and
outstanding, and, to the knowledge of TCI, the number of shares of capital
stock (or other equity interests) owned of record by each shareholder owning
more than five percent of the issued and outstanding shares of common stock as
of the date set forth in the TCI Disclosure Schedule. All of the outstanding
shares of capital stock of TCI are validly issued, fully paid and non-
assessable and were not issued in violation of any preemptive rights or any
applicable Law. All shares of capital stock of TCI are owned free

B-16
<PAGE>

and clear of any lien, claim or encumbrance of any type whatsoever imposed by
TCI. There are no outstanding options, warrants or other rights to acquire any
shares of capital stock of TCI, and there are no outstanding securities
authorized, granted or issued by TCI that are convertible into or exchangeable
for capital stock of TCI and there are no phantom stock rights, stock
appreciation rights or similar rights regarding TCI. There are no rights of any
Person to have TCI repurchase any capital stock of TCI.

SECTION 4.05 Conflicts. The execution, delivery and performance of this
Agreement by TCI and the consummation of the transactions contemplated hereby
will not

(a) result in the creation or imposition of any security interest, lien,
charge or other encumbrance against the TCI Assets (as defined herein),
with or without the giving of notice and/or the passage of time, or

(b) violate, affect acceleration of, or result in termination,
cancellation or modification of, or constitute a default under (i) any
contract, agreement or other instrument to which TCI is a party or by which
TCI or its assets is bound or (ii) any note, bond, mortgage, indenture,
deed of trust, license, lease, contract, commitment, understanding,
arrangement, agreement or restriction of any kind or character to which TCI
is a party or by which TCI may be bound or affected, or to which any of the
TCI Assets may be subject, or

which violation, acceleration, requirement, termination, modification or
default described in (a), (b), or (c) above could reasonably be expected to
result in a Material Adverse Effect on TCI or the transactions contemplated by
this Agreement.

SECTION 4.06. Consents and Approvals. Except for (i) the filing with the
Commission of proxy material regarding the Merger and the related vote of TCI's
shareholders and (ii) any required filing pursuant to the HSR Act, TCI is not
required to obtain, transfer or cause to be transferred any consent, approval,
license, permit or authorization of, or make any declaration, filing or
registration with, any third party or any public body or authority in
connection with (x) the execution and delivery by TCI of this Agreement, (y)
the consummation of the Merger and the other transactions contemplated hereby
or (z) the conduct by the Surviving Corporation of the CMET Business.

SECTION 4.07. Financial and Operating Statements.

(a) TCI 1997 Financial Statements. Attached hereto as Appendix III is a true
and complete copy of the audited balance sheet of TCI as of December 31, 1997
(the "TCI 1997 Balance Sheet"), together with related statements of operations,
equity and cash flow of TCI (and notes thereto) for such period (collectively,
the "TCI 1997 Financial Statements"). The TCI 1997 Financial Statements fairly
present the consolidated financial position and the results of operations of
TCI for the period therein identified in conformity with GAAP consistently
applied.

(b) TCI 1998 Financial Statements. Attached hereto as Appendix IV is a true
and complete copy of the unaudited consolidated financial statements of TCI for
the six months ended June 30, 1998 (the "TCI 1998 Financial Statements"). The
TCI 1998 Financial Statements fairly present the financial position and results
of operations of TCI for the period therein identified, except that the TCI
1998 Financial Statements do not include notes or normal year end adjustments.

(c) Accounting Records. TCI (i) keeps books, records and accounts that, in
reasonable detail, accurately and fairly reflect the transactions, dispositions
and assets of TCI and (ii) maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (A) transactions are executed
in accordance with the management's general or specific authorization, and (B)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain accountability for assets
and (C) access to such books, records and accounts is permitted only in
accordance with management's general or specific authorizations.

B-17
<PAGE>

SECTION 4.08. No Material Undisclosed or Contingent Liabilities. Except for
(a) liabilities or obligations incurred by TCI in the ordinary course of
business and not required by GAAP to be set forth on the TCI 1997 Balance Sheet
(all of which items, to the extent material (individually or in aggregate), are
described in Section 4.08 of the TCI Disclosure Schedule), and (b) liabilities
and obligations incurred by TCI in the ordinary course of business since the
date of the TCI 1997 Balance Sheet (none of which could reasonably be expected
to cause a Material Adverse Effect on TCI), to the best knowledge of TCI, there
is no basis for the assertion against TCI of any liability or obligation of any
nature whatsoever (whether absolute, accrued, contingent or otherwise) that may
materially encumber or affect TCI or the transactions contemplated hereby which
is not fully reflected or reserved against on the TCI 1997 Balance Sheet.

SECTION 4.09. Assets of TCI. The material assets of TCI (collectively, the
"TCI Assets") include the assets referenced below (for purposes of this Section
4.09, Section 4.10, Section 4.11, Section 4.13 and Section 4.14, "material"
shall refer to items capable of producing a monetary effect of at least
$1,000,000 on the business, operations, properties, condition, assets,
obligations or liabilities of TCI and its subsidiaries taken as a whole; the
fact that any asset is listed or otherwise described below or in the TCI
Disclosure Schedule is not, and shall not be interpreted to be, evidence that
such asset is a "material" asset of TCI):

(a) Receivables. All material accounts receivable, bills and notes
receivable, commercial paper and acceptances or any other evidences of
indebtedness to TCI including, without limitation, those items listed in
Section 4.09(a) of the TCI Disclosure Schedule;

(b) Company Equipment. All material furniture, fixtures and equipment of
TCI (the "TCI Equipment") including, without limitation, those items listed
in Section 4.09(b) of the TCI Disclosure Schedule, whether or not such
items are in any way attached or affixed to real property;

(c) Contracts. All material leases (other than residential leases on
apartment properties), contracts, agreements, arrangements, commitments and
understandings (whether written or oral), including, without limitation,
all mortgages, leases, security deposits and options under leases,
acquisition agreements, confidentiality agreements and deferred
compensation agreements (collectively, "Contracts"), to which TCI is a
party, including, without limitation, all such contracts listed or referred
to in Section 4.09(c) of the TCI Disclosure Schedule;

(d) Insurance. All insurance policies covering TCI, its properties or
equipment, and its trustees, officers and agents (and all rights and claims
thereunder for damage to, or otherwise relating to, the TCI Assets),
including, without limitation, those items listed in Section 4.09(d) of the
TCI Disclosure Schedule;

(e) Permits. All material licenses, permits and authorizations issued by
any federal, state, local or foreign governmental authority (the "Permits")
relating to TCI, the TCI Assets or the conduct of the business of TCI (the
"TCI Business"), including, without limitation, those items listed in
Section 4.09(e) of the TCI Disclosure Schedule;

(f) Real Property. Any and all fee and leasehold interests of TCI as
lessee regarding any of its real property (collectively, the "TCI
Properties") described and listed in Section 4.09(f) of the TCI Disclosure
Schedule; and

(g) Miscellaneous. Any and all other material property, real, personal,
or otherwise, tangible or intangible, which is owned or held by the TCI or
the trustees of TCI, including, but not limited to, property which is
transferred, conveyed, or paid to TCI or the trustees of TCI, and all
rents, income, profits, and gains therefrom.

SECTION 4.10. Absence of Certain Changes. Since December 31, 1997, except
as set forth in the TCI Disclosure Schedule or the TCI SEC Reports (as defined
in Section 4.17, below), TCI has not:

B-18
<PAGE>

(b) experienced any material decrease in the book value of the TCI
Assets from the amounts reflected on the TCI 1997 Balance Sheet, other than
decreases resulting from depreciation in accordance with accounting
practices in effect at all times since January 1, 1997; or

(c) incurred any material liabilities or obligations of any nature,
whether absolute, accrued, contingent or otherwise and whether due or to
become due, except (i) liabilities or obligations for rent under the TCI
Leases (as defined herein), (ii) liabilities or obligations for other items
incurred in the ordinary course of business of TCI and consistent with past
practice, none of which other items exceeds $1,000,000, considering
liabilities or obligations arising from one transaction or a series of
similar transactions, and all periodic installments or payments under any
lease (other than the TCI Leases) or other agreement providing for periodic
installments or payments, as a single obligation or liability, and (iii)
loans in connection with acquisitions of assets in the ordinary course of
business or refinancing of existing loans; or

(e) paid, discharged or satisfied any claims, encumbrances, liabilities
or obligations (whether absolute, accrued, contingent or otherwise and
whether due or to become due) other than the payment, discharge or
satisfaction in the ordinary course of business and consistent with past
practice of liabilities and obligations reflected or reserved against in
the TCI 1997 Balance Sheet or incurred in the ordinary course of business
and consistent with past practice since the date thereof; or

(f) permitted, allowed or suffered any of the TCI Assets, including,
without limitation, real property, personal property or any leasehold
interest, to be subjected to any mortgage, pledge, lien, encumbrance,
restriction or charge of any kind, except for liens for Taxes not yet owing
or in connection with any refinancing in the ordinary course of business;
or

(h) canceled any amount of indebtedness or waived any claims or rights;
or

(i) sold, transferred or otherwise disposed of any of the TCI Assets
except in the ordinary course of business and consistent with past
practice; or

(j) granted any increase in the salary, compensation, rate of
compensation, commissions or bonuses payable to or to become payable by TCI
to any officer or director of TCI (including, without limitation, any
increase or change pursuant to any bonus, pension, profit-sharing or other
plan or commitment or any grant of severance, change of control or other
"golden parachute" benefits), except in the ordinary course of business and
consistent with past practice; or

(k) paid, loaned or advanced any amount to any officer, director or
shareholder of TCI except for amounts advanced to trustees or officers of
TCI in the ordinary course of business consistent with past practice for
out-of-pocket expenses in connection with travel; or

(l) sold, transferred or leased any of the TCI Assets to, or entered
into any agreement or arrangement with, any officer, director or
shareholder of TCI; or

(n) made any change in any method of accounting or accounting practice
or policy; or

(o) suffered aggregate casualty losses in excess of $1,000,000 (whether
or not insured against); or

B-19
<PAGE>

(p) issued any additional shares of TCI Common Stock or any option,
warrant, right or other security exercisable for, convertible into or
exchangeable for TCI Common Stock; or

(q) paid dividends on or made other distributions or payments in respect
of TCI Common Stock, other than regular quarterly dividends; or

(r) taken any other action not either in the ordinary course of business
and consistent with past practice or provided for in this Agreement; or

(s) paid any advisory, consulting or similar fees to any Person except
in the ordinary course of business and pursuant to the Advisory Agreement
between TCI and Basic; or

(t) agreed (other than with respect to the transactions contemplated by
this Agreement), whether in writing or otherwise, to take any of the
actions set forth in this Section 4.10.

SECTION 4.11. Real Property.

(a) Set forth in Section 4.11 of the TCI Disclosure Schedule is a complete
list of all real property that TCI currently owns. TCI has good and
indefeasible title in fee simple to such currently owned real property and to
all buildings and improvements thereon, free and clear of any mortgages, liens,
claims, charges, pledges, security interests or other encumbrances of any
nature whatsoever ("Encumbrances"), other than those Encumbrances described in
the CMET SEC Reports.

(b) To the best knowledge of TCI, with respect to any deeds, title insurance
policies, surveys, mortgages, agreements and other documents granting to TCI
title to or an interest in or otherwise affecting any such real property, (i)
no material breach or event of default on the part of TCI, (ii) no material
breach or event of default on the part of any other party thereto, and (iii) no
event that, with the giving of notice or lapse of time or both, would
constitute such material breach or event of default on the part of TCI or on
the part of any other party thereto, has occurred and is continuing.

(c) Section 4.11 of the TCI Disclosure Schedule contains a complete and
accurate list of all of TCI's material leasehold interests as lessee in real
property (collectively, "TCI Leases") (including all amendments thereof and
modifications thereto). TCI's interests in and to all TCI Leases are free and
clear of all material mortgages, liens, claims, charges, pledges, security
interests or other encumbrances of any nature whatsoever. TCI has not received
notice of any default by TCI under any of the TCI Leases, and there are no
facts or conditions that would, with notice or lapse of time or both,
constitute a default by TCI under any of the TCI Leases. To the best knowledge
of TCI, none of the landlords under any of the TCI Leases is in default.

(d) The buildings and improvements owned or leased by TCI on any real
property owned by TCI and on any TCI Lease, and the operation and maintenance
thereof as operated and maintained, do not materially (i) contravene any zoning
or building Law or ordinance or other administrative regulation or (ii) violate
any restrictive covenant or any applicable Law. All of the plants, buildings
and structures located on any real property owned by TCI or on any TCI Lease
are in a state of good maintenance and repair (normal wear and tear excepted)
suitable in all material respects for the operation of the TCI Business.

(e) There is no material pending or, to the best knowledge of TCI,
threatened condemnation, eminent domain or similar proceeding with respect to,
or that could reasonably be expected to affect, any real property owned by TCI
or any TCI Lease.

SECTION 4.12. TCI Equipment. TCI has good and valid title to each piece of
TCI Equipment, except for those pieces of equipment that have been disposed of
in the ordinary course of business since December 31, 1997 without violation of
Section 6.02 hereof. Taken as a whole, the TCI Equipment is (and, to the
knowledge of TCI, all pieces of TCI Equipment are) in good and normal operating
condition and repair (ordinary wear and tear excepted) and adequate for the
uses to which it is being put by TCI. TCI has not received any notification
from any governmental or regulatory authority within the last five years that
TCI is in current violation of any

B-20
<PAGE>

health, sanitation, fire, safety, zoning, building or other Law (provided that
this Section does not cover Environmental Laws, which are addressed more
particularly in Section 4.20), ordinance or regulation in respect of the TCI
Equipment or operations, which violation has not been appropriately and
completely resolved.

SECTION 4.13. Contracts and Commitments.

(a) All material contracts, agreements and commitments to which TCI is a
party or is bound (and which provide for payment by TCI or receipt by TCI of
more than $1,000,000 over the life of the contract, agreement or commitment or
which are otherwise material to TCI) are listed in Section 4.13(a) of the TCI
Disclosure Schedule.

(b) TCI is not a party to or bound by any agreements, contracts or
commitments which individually or when aggregated with all related agreements,
contracts or commitments, provide for the grant of any material preferential
rights to purchase or lease any of the TCI Assets, except as described in
Section 4.13(b) of the TCI Disclosure Schedule.

(c) TCI has delivered or made available to CMET true and complete copies of
each written agreement, contract or commitment listed in Section 4.13(a) of the
TCI Disclosure Schedule, as well as true and accurate summaries of any oral
agreement listed thereon.

(d) The enforceability of the material agreements, contracts and commitments
referred to in this Section 4.13 will not be affected in any respect by the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.

(e) TCI is not a party to or bound by any outstanding agreements,
arrangements or contracts with any of its officers, shareholders, directors,
agents, consultants or advisors (or any affiliates of such Persons) that (i)
are not cancelable by it on notice of not longer than 30 days and without the
imposition of any liability, penalty or premium or (ii) require non-cancelable
payment by TCI of over $1,000,000.

(f) TCI is not a party to or bound by any agreement that contains any
provision for severance or termination pay liabilities or obligations
(including, without limitation, change of control or "golden parachute"
provisions).

(g) TCI is not a party to or bound by:

(i) any mortgage, indenture, note, installment obligation or other
instrument, agreement or arrangement for or relating to any borrowing of
money by TCI, other than as described in the TCI SEC Reports or the TCI
Disclosure Schedule;

(ii) any guaranty, direct or indirect, by TCI of any obligation for
borrowings or otherwise, excluding endorsements made for collection in the
ordinary course of business, other than guaranties of obligations of
subsidiaries of TCI described in Section 4.03 of the TCI Disclosure
Schedule;

(iv) any agreement containing noncompetition or other limitations
restricting the conduct of the TCI Business; and

(v) any partnership, joint venture or similar agreement, other than in
connection with any ownership of any real property described in Section
4.09 of the TCI Disclosure Schedule by any entity described in Section 4.01
of the TCI Disclosure Schedule.

(h) Neither TCI nor any of its officers or directors is a party to or bound
by any agreement or arrangement for the sale of any of the TCI Assets or TCI
Common Stock or for the grant of any preferential rights to purchase any of the
TCI Assets or TCI Common Stock, other than in the ordinary course of business.

B-21
<PAGE>

(i) With respect to each material contract and agreement listed in Section
4.13 of the TCI Disclosure Schedule, except as set forth therein, (i) each of
such contracts and agreements is valid, binding and in full force and effect
and is enforceable by TCI in accordance with its terms, subject to bankruptcy,
insolvency, reorganization and other Laws and judicial decisions of general
applicability relating to or affecting creditors' rights and to general
principles of equity; (ii) there have been no cancellations or threatened
cancellations thereof nor are there any outstanding disputes thereunder; (iii)
neither TCI, nor, to the best knowledge of TCI, any other party is in breach of
any material provision thereof; and (iv) there does not exist any material
default under, or any event or condition which with the giving of notice or
passage of time or both would become a material breach or default under, the
terms of any such contract or agreement on the part of TCI or, to the best
knowledge of TCI, on the part of any other party thereto.

SECTION 4.14. Litigation. There are no open and unresolved claims, actions,
suits, proceedings, investigations or inquiries that have been made or served
against TCI or, to the best knowledge of TCI, that are pending against (without
having been so served), threatened by or against, or otherwise affecting or
that would adversely affect, the transactions contemplated hereby at law or in
equity or before or by any federal, state, local, foreign or other governmental
department, commission, board, agency, or authority; and no other such claim,
action, suit, proceeding, inquiry or investigation could be brought against TCI
for which valid defenses are not available. No claim, action, suit, proceeding,
inquiry or investigation set forth in Section 4.14 of the TCI Disclosure
Schedule would, if adversely decided, have a Material Adverse Effect on TCI or
the transactions contemplated hereby. TCI is not a party to or a recipient of
service of process regarding (and has not otherwise been named and noticed in)
any judgment, order or decree entered in any lawsuit or proceeding which has
had or may have a Material Adverse Effect on TCI or on its ability to acquire
any property or conduct its business in any way.

SECTION 4.15. Insurance.

(a) All policies of fire, liability, product liability and all other forms
of insurance relating to the TCI Business (the "TCI Insurance Policies") are in
full force and effect.

(b) All billed premiums with respect to the TCI Insurance Policies covering
all periods up to and including the Closing Date have been paid or will be paid
prior to the Closing Date.

(d) The TCI Insurance Policies are sufficient for compliance with all
requirements of Law and of all agreements with respect to the operation of the
TCI Business and are valid, outstanding and enforceable policies (subject to
bankruptcy, insolvency, reorganization and other Laws and judicial decisions of
general applicability relating to or affecting creditors' rights and to general
principles of equity).

(e) The coverage provided by the TCI Insurance Policies, with respect to any
insured act or event occurring on or prior to the Closing Date, will not in any
way be affected by or terminate or lapse by reason of the transactions
contemplated hereby.

SECTION 4.16. Employees; Officer and Director Compensation.

(a) TCI does not have any employees. TCI does not have any plans or
intentions to hire any employees, nor is TCI currently engaged in any
discussions to hire any employees.

(b) Section 4.16 of the TCI Disclosure Schedule sets forth a complete and
accurate list showing the names, the rate of compensation and the portions
thereof attributable to salary and bonuses, respectively, as well as the
location of all officers and directors of TCI and of all consultants to TCI
that received annual base compensation and cash bonus payable by TCI totaling
in excess of $75,000 for the fiscal year ended December 31, 1997.

B-22
<PAGE>

SECTION 4.17. Compliance with Law.

(a) To the best knowledge of TCI, TCI is in compliance in all material
respects with all Laws applicable to the TCI Business.

(b) Since December 31, 1997, filings required to be made by TCI under the
Securities Act or the Exchange Act have been filed with the SEC as required by
each such law or regulation, including all forms, statements, reports,
agreements and all documents, exhibits, amendments and supplements appertaining
thereto, and TCI has complied in all material respects with all applicable
requirements of the appropriate act and the rules and regulations thereunder.

(c) TCI has made available to CMET a true and complete copy of each report,
schedule, registration statement and definitive proxy statement filed by TCI
with the SEC since December 31, 1997 and through the date hereof (such
documents as filed, and any and all amendments thereto (the "TCI SEC Reports").

(d) The TCI SEC Reports, including without limitation any financial
statements or schedules included therein, at the time filed, and all forms,
reports or other documents filed by TCI with the SEC after the date hereof, did
not and will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.

(e) TCI has not received written notification from any governmental or
regulatory authority within the past five years of any asserted present or past
failure to so comply with Laws, which failure has not been appropriately and
completely resolved.

(f) TCI has not been notified by any governmental or regulatory authority
that TCI is in violation or alleged violation of any Law applicable to the TCI
Business which violation has not been appropriately and completely resolved, or
that any governmental or regulatory authority contemplates any investigation or
proceeding with respect to any such violation or alleged violation which has
not been appropriately and completely resolved.

SECTION 4.18. Material Permits. TCI has all material Permits necessary for
the ownership or leasing of its properties and the conduct of the TCI Business
as now being conducted. All such material Permits are in full force and effect.
No violations exist or, to the best knowledge of TCI, have been reported in
respect of such material Permits. No notice of any proceeding has been served
or otherwise given to TCI or, to the best knowledge of TCI, is pending (without
service or other notice) or threatened seeking the revocation or limitation of
any of such material Permits. Section 4.09(e) of the TCI Disclosure Schedule
contains a complete list of all material Permits of TCI.

SECTION 4.19. Environmental Matters. Except as set forth in the TCI SEC
Reports or in Section 4.19 of the TCI Disclosure Schedule and any environmental
assessment or report listed therein, to the actual knowledge of the executive
officers of TCI: none of TCI, any of its subsidiaries or any other person has
caused or permitted (a) the unlawful presence of any hazardous substances,
hazardous materials, toxic substances or waste materials (collectively,
"Hazardous Materials") on any of the TCI Properties, or (b) any unlawful
spills, releases, discharges or disposal of Hazardous Materials to have
occurred or be presently occurring on or from the TCI Properties, which
presence or occurrence would, individually or in the aggregate, have a Material
Adverse Effect; TCI and its subsidiaries have not failed to comply with all
applicable local, state and federal environmental laws, regulations, ordinances
and administrative and judicial orders relating to the generation, recycling,
reuse, sale, storage, handling, transport and disposal of any Hazardous
Materials or environmental matters or contamination ("Environmental Laws"),
except where the failure to so comply would not reasonably be expected to have
a Material Adverse Effect; and TCI, its assets and businesses and all
operations related thereto are now in compliance with all Environmental Laws
and not subject to any liability, or, with respect to any required remediation,
corrective action or prophylactic or other like action, obligation under any
Environmental Law, except where the failure to comply with any such
Environmental Law would not reasonably be expected to have a Material Adverse
Effect.

B-23
<PAGE>

SECTION 4.20. Tax Matters.

(a) All Tax Returns required to be filed on or before the Closing Date by
TCI have been or will be filed within the time prescribed by Law (including
extensions of time approved by the appropriate taxing authority). The Tax
Returns so filed are complete, correct and accurate representations of the Tax
liabilities of TCI and such Tax Returns accurately set forth or will accurately
set forth all items to the extent required to be reflected or included in such
returns.

(b) TCI has timely paid or has made adequate provision in the TCI 1997
Balance Sheet for the payment of all Taxes due on such Tax Returns that have
been filed or will be filed for periods ending on or before the date of the TCI
1997 Balance Sheet.

(c) There is no action, suit, investigation, proceeding, audit or claim that
has been served against or otherwise properly noticed to TCI, or, to the best
knowledge of TCI, pending or proposed against or with respect to TCI in respect
of any Tax. There are no material liens for Taxes upon any of the TCI Assets.

(d) TCI has withheld and paid all Taxes required to have been withheld and
paid in connection with amounts paid or owing to any creditor, independent
contractor, or other Person.

(e) TCI has not waived any statute of limitations in respect of Taxes or
agreed to any extension of time with respect to a Tax assessment or deficiency.

(f) TCI does not have in effect a consent under Section 341(f) of the Code
concerning collapsible corporations.

(g) TCI has not made any payment, and is not obligated to make any payment,
and is not a party to any agreement that could obligate it to make any payment
that will not be deductible under section 280G of the Code or will be subject
to Tax under section 4999 of the Code.

(h) There has never been a Tax sharing or allocation agreement in place
between TCI and any other Person other than those, if any, with respect to
which the applicable statute of limitations has run.

(i) TCI is not liable for a Tax incurred by any other corporation that was a
member of a consolidated group of corporations (within the meaning of Treasury
regulation section 1.1502) that included TCI.

(j) TCI has delivered or made available to CMET correct and complete copies
of all Tax Returns filed by TCI for 1995, 1996 and 1997, all examination
reports, and any statements of deficiencies assessed against or agreed to by
TCI.

(k) Since December 31, 1997, TCI has incurred no liability for Taxes under
Sections 857(b) (other than 857(b)(1) or (3)), 860(c) or 4981 of the Code,
including without limitation, any Tax arising from a prohibited transaction
described in Section 857(b)(6) of the Code, and TCI has not incurred any
liability for Taxes other than in the ordinary course of business.

(l) TCI (i) has elected to be taxed as a REIT commencing January 31, 1984,
(ii) has been subject to taxation as a REIT within the meaning of Section 856
of the Code and has satisfied all requirements to qualify as a REIT for all
taxable years commencing December 31, 1984, through its taxable year ended
December 31, 1997, (iii) has operated since December 31, 1997 to the date of
this representation, and intends to continue to operate, in such a manner so as
to qualify as a REIT for its taxable year ending immediately after the Closing
Date, and (iv) has not taken or omitted to take any action which would
reasonably be expected to result in a challenge to its status as a REIT, and to
the knowledge of the executive officers of TCI, no such challenge is pending or
threatened. TCI represents that each of its corporate subsidiaries is, and at
all times since its affiliation with TCI has qualified as, a qualified REIT
subsidiary as defined in Section 856(i) of the Code, and that each partnership,
limited liability company, joint venture or other legal entity (other than a
corporation) in

B-24
<PAGE>

which TCI (either directly or indirectly) owns any of the capital stock or
other equity interests thereof has been treated since its formation and
continues to be treated for federal income tax purposes as a partnership or
disregarded as an entity separate from its owner and not as an association
taxable as a corporation. TCI has no net unrealized built-in gain within the
meaning of Section 1374(d)(1) of the Code that would be subject to an election
under IRS Notice 88-19 or has any earning and profits accumulated in any non-
REIT year within the meaning of Section 857 of the Code.

SECTION 4.21. Title to Assets. TCI has good, valid and indefeasible title to
the TCI Assets, including, without limitation, those assets set forth on the
TCI 1997 Balance Sheet.

SECTION 4.22. Redemptions of Capital Stock by TCI. There exists no
continuing claim by any former or current shareholder, for money or otherwise,
against TCI regarding any redemptions of its capital stock, and no basis for
any such claim exists.

SECTION 4.23. Brokers. TCI has not employed any broker, finder or similar
agent in connection with the transactions contemplated by this Agreement,
except that TCI has retained Wedbush Morgan Securities to render a fairness
opinion with respect to the Merger. Other than the foregoing arrangement, TCI
is not aware of any claim for payment of any finder's fees, brokerage or
agent's commissions or other like payments in connection with the negotiations
by TCI leading to this Agreement or the consummation of the transactions
contemplated hereby.

SECTION 4.24. Fairness Opinion. TCI has received the opinion of Wedbush
Morgan Securities to the effect that, as of September 21, 1998, the Merger
Consideration is fair from a financial point of view to the holders of TCI
Common Stock.

ARTICLE V

OTHER OBLIGATIONS OF THE PARTIES

SECTION 5.01. Conduct of CMET Business. From the date hereof to the Closing,
except as otherwise expressly set forth in this Agreement, CMET shall conduct
its business, operations, activities and practices only in the ordinary course,
in accordance with prudent practice and consistent with past practice. Without
limiting the generality of the foregoing, from the date hereof until the
Closing, without the prior consent of TCI, CMET shall not:

(a) incur any liabilities or obligations of any nature whatsoever
(whether absolute, accrued, contingent or otherwise and whether due or to
become due), except for liabilities or obligations for (i) rent under the
CMET Leases (provided, that CMET shall not enter into any new, modified or
extended leases for real property without the consent of TCI), (ii) other
items incurred in the ordinary course of business and consistent with past
practice, none of which other items shall exceed $100,000 (considering
liabilities or obligations arising from one transaction or a series of
similar transactions, and all periodic installments or payments under any
lease (other than the CMET Leases) or other agreement providing for
periodic installments or payments, as a single obligation or liability) and
(iii) loans in connection with acquisitions of assets in the ordinary
course of business or refinancing of existing loans;

(b) increase (other than an increase resulting from the calculation of
reserves in the ordinary course of business and in a manner consistent with
past practice) or change any assumptions underlying, or methods of
calculating, any bad debt, contingency or other reserves;

(c) pay, discharge or satisfy any claim, encumbrance, liability or
obligation (whether absolute, accrued, contingent or otherwise and whether
due or to become due), other than the payment, discharge or satisfaction in
the ordinary course of business and consistent with past practice of
liabilities and obligations which are reflected or reserved against in the
CMET 1997 Balance Sheet or which have been incurred since the date thereof
in the ordinary course of business and consistent with past practice, or
prepay any liability or obligation having a fixed maturity of more than 90
days from the date such liability or obligation was issued or incurred;

B-25
<PAGE>

(d) permit, allow or suffer any of the Trust Estate to be subjected to
any new or additional mortgage, pledge, lien, encumbrance, restriction or
charge of any kind (except for liens arising as a result of Taxes not yet
owing and loans in connection with acquisitions of assets in the ordinary
course of business or refinancing of existing loans);

(e) determine as collectible any notes or accounts receivable or any
portion thereof which was previously considered uncollectible or write off
as uncollectible any notes or accounts receivable or any portion thereof
other than in the ordinary course of business and consistent with past
practice;

(f) cancel any aggregate amount of indebtedness in excess of $100,000 or
waive any claims or rights of value in excess of $100,000 and in no case
other than in the ordinary course of business and consistent with past
practice;

(g) sell, transfer or otherwise dispose of any of the Trust Estate other
than in the ordinary course of business;

(h) grant any increase in the compensation payable to or to become
payable to any trustees, directors or officers (including, without
limitation, any increase or change pursuant to any bonus, pension, profit-
sharing or other plan or commitment);

(i) pay, loan or advance any amount (except for advances in the ordinary
course of business and consistent with past practice for out-of-pocket
expenses in connection with travel that do not in the aggregate exceed
$25,000) to any officers, directors, trustees or shareholders;

(j) enter into any employment agreement, or enter into any consulting
agreement or other agreement that contains any provision for severance or
termination liabilities or obligations (including, without limitation,
change of control or "golden parachute" provisions);

(k) sell, transfer or lease any of the Trust Estate to, or enter into
any agreement or arrangements with, any officers, directors, trustees or
shareholders;

(l) enter into any collective bargaining or labor agreement;

(m) make aggregate capital expenditures or commitments in excess of
$100,000 for additions to property or for any other purpose;

(n) make any change in any method of accounting or accounting practice
or policy;

(o) enter into any agreement or contract or commitment of the type
required to be disclosed pursuant to Section 3.10 hereof or outside the
ordinary course of business;

(p) terminate or amend in any material respect any contract, lease,
license, or other agreement to which it is a party that is required to be
set forth in Section 3.13(a) of the CMET Disclosure Schedule;

(q) exercise, or permit the expiration of, any CMET Lease option or
option to purchase any property;

(r) issue any additional shares of capital stock of or beneficial
interests or options, warrants, rights (including, without limitation,
stock appreciation rights and phantom stock rights) or other securities
exercisable for, convertible into or exchangeable for shares of capital
stock of or beneficial interests except for shares issued pursuant to a
dividend reinvestment plan, or pay any dividend (or make any other
distribution) to its holders of capital stock or beneficial interests
except regular quarterly dividends;

(s) omit to do any act, or permit any act or omission to act, which may
cause a breach of any contract, commitment or obligation, or any breach of
any representation, warranty, covenant or agreement made by such party
herein;

(t) take any other action not in the ordinary course of business and
consistent with past practice or provided for in this Agreement; or

(u) agree, whether in writing or otherwise, to do any of the foregoing.

Notwithstanding anything to the contrary in this Section 5.01, CMET may
consummate the Incorporation pursuant to Article I hereof.

B-26
<PAGE>

SECTION 5.02. Conduct of TCI Business. From the date hereof to the Closing,
except as otherwise expressly set forth in this Agreement, TCI shall conduct
its business, operations, activities and practices only in the ordinary course,
in accordance with prudent practice and consistent with past practice. Without
limiting the generality of the foregoing, from the date hereof until the
Closing, without the prior consent of CMET, TCI shall not:

(a) incur any liabilities or obligations of any nature whatsoever
(whether absolute, accrued, contingent or otherwise and whether due or to
become due), except for liabilities or obligations for (i) rent under the
TCI Leases (provided, that TCI shall not enter into any new, modified or
extended leases for real property without the consent of CMET), (ii) other
items incurred in the ordinary course of business and consistent with past
practice, none of which other items shall exceed $100,000 (considering
liabilities or obligations arising from one transaction or a series of
similar transactions, and all periodic installments or payments under any
lease (other than the TCI Leases) or other agreement providing for periodic
installments or payments, as a single obligation or liability) and (iii)
loans in connection with acquisitions of assets in the ordinary course of
business or refinancing of existing loans;

(c) pay, discharge or satisfy any claim, encumbrance, liability or
obligation (whether absolute, accrued, contingent or otherwise and whether
due or to become due), other than the payment, discharge or satisfaction in
the ordinary course of business and consistent with past practice of
liabilities and obligations which are reflected or reserved against in the
TCI 1997 Balance Sheet or which have been incurred since the date thereof
in the ordinary course of business and consistent with past practice, or
prepay any liability or obligation having a fixed maturity of more than 90
days from the date such liability or obligation was issued or incurred;

(d) permit, allow or suffer any of the TCI Assets to be subjected to any
new or additional mortgage, pledge, lien, encumbrance, restriction or
charge of any kind (except for liens arising as a result of Taxes not yet
owing and loans in connection with acquisitions of assets in the ordinary
course of business or refinancing of existing loans);

(g) sell, transfer or otherwise dispose of any of the TCI Assets other
than in the ordinary course of business;

(h) grant any increase in the compensation payable to or to become
payable to any directors or officers (including, without limitation, any
increase or change pursuant to any bonus, pension, profit-sharing or other
plan or commitment);

(k) sell, transfer or lease any of the TCI Assets to, or enter into any
agreement or arrangements with, any officers, directors or shareholders;

B-27
<PAGE>

(l) enter into any collective bargaining or labor agreement;

(m) make aggregate capital expenditures or commitments in excess of
$100,000 for additions to property or for any other purpose;

(n) make any change in any method of accounting or accounting practice
or policy;

(o) enter into any agreement or contract or commitment of the type
required to be disclosed pursuant to Section 4.10 hereof or outside the
ordinary course of business;

(p) terminate or amend in any material respect any contract, lease,
license, or other agreement to which it is a party that is required to be
set forth in Section 4.13(a) of the TCI Disclosure Schedule;

(q) exercise, or permit the expiration of, any TCI Lease option or
option to purchase any property;

(r) issue any additional shares of capital stock or options, warrants,
rights (including, without limitation, stock appreciation rights and
phantom stock rights) or other securities exercisable for, convertible into
or exchangeable for shares of capital stock except for shares issued
pursuant to a dividend reinvestment plan, or pay any dividend (or make any
other distribution) to its holders of capital stock except regular
quarterly dividends;

(t) take any other action not in the ordinary course of business and
consistent with past practice or provided for in this Agreement; or

(u) agree, whether in writing or otherwise, to do any of the foregoing.

SECTION 5.03. Access to Books and Records. In order that each of TCI and
CMET may have full opportunity to make investigations of each other in
connection with the actions contemplated by this Agreement, CMET shall permit
TCI, TCI shall permit CMET, and each shall permit the other's counsel,
accountants, auditors, lenders, environmental consultants and other
representatives, reasonable access, upon reasonable notice, to all of the
offices, properties, books and records, contracts and commitments of CMET and
TCI, respectively, from the date hereof through the Closing Date.

SECTION 5.04. Consents. CMET agrees to use commercially reasonable best
efforts to obtain prior to the Closing all consents and approvals necessary, in
the reasonable determination of TCI, to consummate the transactions
contemplated hereby, including, without limitation, the approvals, licenses,
permits and authorizations (and the declarations, filings and registrations)
listed or referred to in Section 3.06 of the CMET Disclosure Schedule. TCI
agrees to use commercially reasonable best efforts to obtain prior to the
Closing all consents and approvals necessary, in the reasonable determination
of CMET, to consummate the transactions contemplated hereby, including, without
limitation, the approvals, licenses, permits and authorizations (and the
declarations, filings and registrations) listed or referred to in Section 4.06
of the TCI Disclosure Schedule. All such consents shall be in writing and in
form and substance mutually satisfactory to the parties.

SECTION 5.05. Other Transactions.

(a) CMET Transactions. Prior to the Closing, CMET shall not, and shall not
permit any of its officers, trustees or other representatives to, directly or
indirectly, encourage, solicit or initiate or (except as set forth below)
participate in negotiations with, or (except as set forth below) provide any
information or assistance to, any Person (other than TCI and its
representatives) concerning any merger, sale of securities, sale of the Trust
Estate or similar transaction involving CMET or any of the Trust Estate (a
"CMET Transaction"), other than the transactions contemplated between the
parties by this Agreement. In the event that the Board of Trustees of CMET
makes a reasonable determination that its fiduciary obligations require it to
negotiate with or provide information to an unsolicited third party regarding a
CMET Transaction, CMET shall notify TCI promptly of the existence of such
negotiations and the names of each Person, other than CMET, participating in
discussions

B-28
<PAGE>

regarding such a Transaction, although CMET may engage in such negotiations and
provide such information notwithstanding the other provisions of this Section
5.05.

(b) TCI Transactions. Prior to the Closing, TCI shall not, and shall not
permit any of its officers, directors or other representatives to, directly or
indirectly, encourage, solicit or initiate or (except as set forth below)
participate in negotiations with, or (except as set forth below) provide any
information or assistance to, any Person (other than CMET and its
representatives) concerning any merger, sale of securities, sale of the TCI
Assets or similar transaction involving TCI or any of the TCI Assets (a "TCI
Transaction"), other than the transactions contemplated between the parties by
this Agreement. In the event that the Board of Directors of TCI makes a
reasonable determination that its fiduciary obligations require it to negotiate
with or provide information to an unsolicited third party regarding a TCI
Transaction, TCI shall notify CMET promptly of the existence of such
negotiations and the names of each Person, other than TCI, participating in
discussions regarding such a TCI Transaction, although TCI may engage in such
negotiations and provide such information notwithstanding the other provisions
of this Section 5.05.

SECTION 5.06. Supplemental Disclosure by CMET.

(a) The CMET Disclosure Schedule shall be considered to be part of the
representations and warranties of CMET.

(b) Until the Closing, each of CMET and CME Corporation shall have the
continuing obligation to promptly supplement or amend its disclosure schedule
with respect to any matter hereafter arising or discovered which, if existing
or known at the date of this Agreement, would have been required to be set
forth or described in such Sections of its disclosure schedule ("Supplemental
Disclosures").

(c) CMET acknowledges that its disclosure schedule is an important and
integral part of this Agreement and that TCI shall be entitled to treat any
such supplementation or amendment as a breach of the appropriate representation
or warranty, whether or not the event or condition giving rise to such
supplementation or amendment occurred on or prior to the date hereof except to
the extent that such supplementation or amendment is a result of any of the
activities not prohibited by Section 5.01 ("Section 5.01 Items"), which
supplementation or amendment shall not be deemed a breach by CMET of any
obligation hereunder or be deemed the non-fulfillment of a condition hereunder;
provided, that as a result of the occurrence of the Closing despite such
supplementation or amendment of their disclosure schedules, TCI shall be deemed
to have waived any breach arising from such supplementation or amendment.

SECTION 5.07. Supplemental Disclosure by TCI.

(a) The TCI Disclosure Schedule shall be considered to be part of the
representations and warranties of TCI.

(b) Until the Closing, TCI shall have the continuing obligation to promptly
supplement or amend the TCI Disclosure Schedule with respect to any matter
hereafter arising or discovered which, if existing or known at the date of this
Agreement, would have been required to be set forth or described in the TCI
Disclosure Schedule ("TCI Supplemental Disclosures").

(c) TCI acknowledges that the TCI Disclosure Schedule is an important and
integral part of this Agreement and that CMET and CME Corporation shall be
entitled to treat any such supplementation or amendment as a breach of the
appropriate representation or warranty, whether or not the event or condition
giving rise to such supplementation or amendment occurred on or prior to the
date hereof except to the extent that such supplementation or amendment is a
result of any of the activities not prohibited by Section 5.02 ("Section 5.02
Items"), which supplementation or amendment shall not be deemed a breach by TCI
of any obligation hereunder or be deemed the non-fulfillment of a condition
hereunder; provided, that as a result of the occurrence of the Closing despite
such supplementation or amendment of the TCI Disclosure Schedule, CMET shall be
deemed to have waived any breach arising from such supplementation or
amendment.

B-29
<PAGE>

SECTION 5.08. Governmental Filings. As soon as practicable, CMET and TCI
shall make any and all filings and submissions to any governmental agency
(including, without limitation, any filings required with the Commission) that
are required to be made in connection with the transactions contemplated
hereby. CMET shall furnish to TCI, and TCI shall furnish to CMET, such
information and assistance as the other party or parties may reasonably request
in connection with the preparation of any such filings or submissions.

SECTION 5.09. Covenants Relating to TCI Common Stock.

(a) TCI shall, as soon as practicable following execution of this Agreement,
reserve for issuance to the shareholders of CME Corporation in accordance with
Section 1.08, 4,731,641 shares of TCI Common Stock, which shares of TCI Common
Stock shall be, upon the conversion provided for in Section 1.08, validly
issued, fully paid and non-assessable and not issued in violation of any
preemptive rights or any applicable Law. Such shares of TCI Common Stock shall
be, when delivered to the shareholders of CME Corporation, owned by the
shareholders of CME Corporation free and clear of any lien, claim or
encumbrance of any type whatsoever imposed by TCI.

(b) TCI shall, as soon as practicable following execution of this Agreement,
file a registration statement on Form S-4 (or similar or successor form) with
the Commission covering the 4,731,641 shares of TCI Common Stock into which the
Common Shares is to be converted in accordance with Section 1.08 (the
"Registration Statement"). CMET shall cooperate with TCI in working toward
causing the Registration Statement to be declared effective by the Commission
as soon as possible.

(c) TCI shall, as soon as practicable following execution of this Agreement,
exercise all reasonable efforts to cause such 4,731,641 shares of TCI Common
Stock to be listed on any exchange on which similar securities issued by TCI
are then listed.

SECTION 5.10. Covenant to Satisfy Conditions. CMET and TCI shall each use
their commercially reasonable best efforts to insure that the conditions set
forth in Article VI hereof are satisfied, insofar as such matters are within
their respective control.

SECTION 5.11. Shareholder Approvals.

(a) Subject to the provisions of Section 5.13, below, CMET shall, as soon
as practicable following execution of this Agreement, prepare, file with the
Commission and deliver to its shareholders a proxy statement submitting this
Agreement and the consummation of the Incorporation and the Merger to a vote of
its shareholders in accordance with the California Law.

(b) TCI shall, as soon as practicable following execution of this
Agreement, prepare, file with the Commission and deliver to its shareholders a
proxy statement submitting this Agreement and the consummation of the Merger to
a vote of its shareholders in accordance with the Nevada Law.

SECTION 5.12. Information Delivered to Shareholders.

(a) CMET shall submit all shareholder notices, any proxy solicitation
material required in connection with a meeting of shareholders, written
consents and other shareholder information (to the extent that such information
pertains to the transactions contemplated by this Agreement) to TCI for
approval (which approval shall not be unreasonable withheld) at least five days
prior to delivering such materials to its shareholders. All such materials
shall comply with the California Law and the Nevada Law and all applicable
state and federal securities Laws (including, without limitation, the anti-
fraud provisions thereof).

(b) TCI shall submit all shareholder notices, any proxy solicitation
material required in connection with a meeting of shareholders, written
consents and other shareholder information (to the extent that such information
pertains to the transactions contemplated by this Agreement) to CMET for
approval (which approval shall not be unreasonable withheld) at least five days
prior to delivering such materials to its shareholders. All such materials
shall comply with the Nevada Law and all applicable state and federal
securities Laws (including, without limitation, the anti-fraud provisions
thereof).

B-30
<PAGE>

SECTION 5.13. Non-Public Information. As recipients of what may be deemed to
be non-public information regarding each of TCI and CMET, each of TCI and CMET
agree not to trade in the CMET Common Stock or TCI Common Stock from the date
hereof until the earlier of the Closing or the termination of this Agreement.

SECTION 5.14. Confidentiality. Each party hereto shall hold, and cause its
respective officers, directors, trustees, employees, consultants and advisors
(collectively, "party representatives") to hold, in strict confidence, unless
compelled to disclose by judicial or administrative process or by other
requirements of Law, all documents and information concerning the other parties
furnished to it by any other party or its party representatives in connection
with the transactions contemplated by this Agreement (except to the extent that
such information can be shown to have been (i) previously known by the party to
which it was furnished, (ii) in the public domain through no fault of such
party or (iii) later lawfully acquired from other sources by the party to which
it was furnished), and neither party shall release or disclose to any other
Person (or otherwise use) such information except in connection with the
transactions contemplated hereby. No party shall release any information
regarding this Agreement or the transactions contemplated hereby without the
prior written consent of each other party hereto.

ARTICLE VI

CONDITIONS PRECEDENT

SECTION 6.01. Conditions Precedent to Obligations of TCI. The obligations of
TCI under this Agreement are subject to the satisfaction or, unless prohibited
by law, the waiver by TCI, at or before the Closing, of each of the following
conditions:

(a) Representations and Warranties. The representations and warranties
of CMET contained herein shall be true, complete and accurate as of the
date when made and at and as of the Closing Date as though such
representations, warranties and statements were made at and as of such date
(except for breaches of such representations, warranties and statements
which would, in aggregate, not cause a Material Adverse Effect regarding
CMET, the CMET Business, or the Trust Estate); provided, however, that the
representations and warranties contained herein shall be deemed as of the
date hereof to include any Section 5.01 Items specifically referenced in
the CMET Supplemental Disclosures.

(b) Performance. CMET shall have performed and complied with all
agreements, obligations and conditions required by this Agreement to be so
performed or complied with by it at or prior to the Closing.

(c) No Injunction. On the Closing Date, there shall be no effective
injunction, writ, preliminary restraining order or any order of any nature
issued by a court of competent jurisdiction restraining or prohibiting the
consummation of the transactions contemplated hereby.

(d) No Litigation. There shall not be threatened, instituted or pending
any suit, action, investigation, inquiry or other proceeding by or before
any court or governmental or other regulatory or administrative agency or
commission requesting or looking toward an order, judgment or decree that
(i) restrains or prohibits the consummation of the transactions
contemplated hereby or (ii) would have a Material Adverse Effect on the
business, operations, condition (financial or otherwise), liabilities,
Trust Estate or earnings of the Surviving Corporation.

(e) Officers' Certificates. Each of CMET and CME Corporation shall have
delivered to TCI a certificate, dated the Closing Date, executed by its
Chief Executive Officer and Chief Financial Officer, certifying the
fulfillment of the conditions specified in Section 6.01(a) and (b) hereof.

(f) Secretary's Certificates. Each of CMET and CME Corporation shall
have delivered to TCI a certificate, dated the Closing Date, executed by
its Secretary or Assistant Secretary and certifying as to its
organizational documents, enabling resolutions, incumbency of officers and
other reasonably related matters.

B-31
<PAGE>

(g) Consents and Approvals. All licenses, permits, approvals and
authorizations of all third parties and governmental bodies and agencies
(including, without limitation, the Commission) (the "CMET Consents and
Approvals") shall have been obtained in accordance with the terms of
Section 5.04 hereof which are necessary in connection with (a) the
execution and delivery by each of the parties, as appropriate, of this
Agreement, (b) the consummation by each of the parties of the transactions
contemplated hereby or thereby or (c) the conduct by the Surviving
Corporation of the CMET Business substantially as conducted on the date
hereof, except those CMET Consents and Approvals which, if not obtained,
would not reasonably be expected to result, in the aggregate, in a Material
Adverse Effect.

(h) No Material Adverse Change. Except as specifically disclosed herein
or in the CMET Disclosure Schedule, the events occurring since December 31,
1997, and the conditions arising since such date shall not, in the
aggregate, have resulted in, or with the passage of time or otherwise,
reasonably be expected to result in, a Material Adverse Change regarding
CMET, the CMET Business, or the Trust Estate.

(i) Non-Foreign Status. At or prior to Closing, CME Corporation shall
have delivered to TCI a statement certifying that it is not a foreign
person, which statement shall comply with the requirements of Treasury
regulation Section 1.1445-2(b).

(j) Shareholder Approval. The shareholders of each of CMET and TCI shall
have duly approved, as appropriate, the Incorporation, the Merger and the
other transactions contemplated hereby.

(k) Documents. All documents to be delivered by CMET and/or CME
Corporation at the Closing shall be duly executed and in form and substance
reasonably satisfactory to TCI.

(l) Other. TCI shall have received such other documents or certificates
as TCI may reasonably have requested, including, without limitation,
certificates of good standing with respect to CMET from the appropriate
authority in its jurisdiction of formation and certificates of good
standing with respect to CMET from the appropriate authority in each
jurisdiction in which it is qualified to do business.

(m) Legal Opinion. TCI shall have received the opinion of Andrews &
Kurth L.L.P. to the effect that the Incorporation and the Merger constitute
tax-free reorganizations within the meaning of Section 368(a) of the Code.

(n) The Registration Statement shall have been declared effective, and
no stop order suspending the effectiveness of the Registration Statement
shall be in effect and no proceedings for such purpose shall be pending
before or threatened by the SEC.

SECTION 6.02. Conditions Precedent to Obligations of CMET. The obligations
of CMET under this Agreement are subject to the satisfaction or, unless
prohibited by law, the waiver by CMET at or before the Closing, of each of the
following conditions:

(a) Representations and Warranties. The representations and warranties
of TCI contained herein shall be true, complete and accurate as of the date
when made and at and as of the Closing Date as though such representations
and warranties were made at and as of such date (except for breaches of
such representations, warranties and statements which would, in aggregate,
not cause a Material Adverse Effect regarding TCI); provided, however, that
the representations and warranties contained herein shall be deemed as of
the date hereof to include any Section 5.02 Items specifically referenced
in the TCI Supplemental Disclosures.

(b) Performance. TCI shall have performed and complied with all
agreements, obligations and conditions required by this Agreement to be so
performed or complied with by it at or prior to the Closing.

(c) No Injunction. On the Closing Date, there shall be no effective
injunction, writ, preliminary restraining order or any order of any nature
issued by a court of competent jurisdiction restraining or prohibiting
consummation of the transactions contemplated hereby.

B-32
<PAGE>

(e) Officers' Certificate. TCI shall have delivered to CMET and CME
Corporation a certificate, dated the Closing Date and executed by its
respective duly authorized representative, certifying its fulfillment of
the conditions specified in Sections 6.02(a) and (b) hereof.

(f) Secretary's Certificate. TCI shall have delivered to CMET and CME
Corporation a certificate, dated the Closing Date, executed by its
Secretary or Assistant Secretary and certifying as to its organizational
documents, enabling resolutions, incumbency of signatories and other
related matters.

(g) Consents and Approvals. All licenses, permits, approvals and
authorizations of all third parties and governmental bodies and agencies
(including, without limitation, the Commission) (the "TCI Consents and
Approvals") shall have been obtained in accordance with the terms of
Section 5.04 hereof which are necessary in connection with (a) the
execution and delivery by each of the parties, as appropriate, of this
Agreement, (b) the consummation by each of the parties of the transactions
contemplated hereby or thereby or (c) the conduct by the Surviving
Corporation of the CMET Business substantially as conducted on the date
hereof, except those TCI Consents and Approvals which, if not obtained,
would not reasonably be expected to result, in the aggregate, in a Material
Adverse Effect.

(h) No Material Adverse Change. Except as specifically disclosed herein
or in the TCI Disclosure Schedule, the events occurring since December 31,
1997, and the conditions arising since such date shall not, in the
aggregate, have resulted in, or with the passage of time or otherwise,
reasonably be expected to result in, a Material Adverse Change regarding
TCI.

(i) Shareholder Approval. The shareholders of each of CMET and TCI shall
have duly approved, as appropriate, the Incorporation, the Merger and the
other transactions contemplated hereby.

(j) Documents. All documents to be delivered by TCI to CMET and/or CME
Corporation at the Closing shall be duly executed and in form and substance
reasonably satisfactory to CMET and/or CME corporation, as the case may be.

(k) Other. CMET shall have received such other documents or certificates
as CMET may have reasonably requested, including, without limitation,
certificates of good standing with respect to TCI from the appropriate
authority in its jurisdiction of incorporation and certificates of good
standing with respect to TCI from the appropriate authority in each
jurisdiction in which they are qualified to do business.

(l) Legal Opinion. CMET shall have received the opinion of Andrews &
Kurth L.L.P. to the effect that the Incorporation and the Merger constitute
tax-free reorganizations within the meaning of Section 368(a) of the Code.

(m) Securities Exchange Listing. The 4,731,641 shares of TCI Common
Stock referred to in Section 5.09 hereof shall have been approved for
listing on any exchange on which similar securities issued by TCI are
listed as of the Closing.

B-33
<PAGE>

ARTICLE VII

TERMINATION OF AGREEMENT

SECTION 7.01. Termination of Agreement. This Agreement may be terminated at
any time prior to the Closing:

(a) by mutual agreement of CMET or TCI;

(b) by TCI, on or after June 30, 1999, if (i) any of the conditions
provided in Section 6.01 hereof of this Agreement have not been met or, to
the extent permitted by applicable law, have not been waived in writing by
TCI prior to such date; or

(c) by CMET, on or after June 30, 1999, if (i) any of the conditions
provided in Section 6.02 hereof of this Agreement have not been met or, to
the extent permitted by applicable law, have not been waived in writing by
CMET prior to such date.

SECTION 7.02. Procedure Upon Termination. In the event of termination by
CMET or TCI pursuant to Section 7.01 hereof, written notice thereof shall
promptly be given to the other parties and the transactions contemplated by
this Agreement shall be terminated, without further action by any party. If the
transactions contemplated by this Agreement are terminated as provided herein
CMET or TCI shall return all documents, work papers and other material of any
other party relating to the transactions contemplated hereby, whether so
obtained before or after the execution hereof, to the party furnishing the
same.

SECTION 7.03. Effect of Termination. Except as provided in Section 8.01, in
the event of the termination of this Agreement pursuant to Section 7.01, this
Agreement shall forthwith become void, there shall be no liability under this
Agreement on the part of CMET or TCI or any of their respective officers,
trustees or directors and all rights and obligations of any party hereto shall
cease; provided, however, that nothing herein shall relieve any party from
liability for, or be deemed to waive any rights of specific performance of this
Agreement available to a party by reason of, any willful breach by the other
party of its willful breach of any of its representations, warranties,
covenants or agreements set forth in this Agreement.

ARTICLE VIII

MISCELLANEOUS

SECTION 8.01. Survival of Representations and Warranties. All
representations and warranties made hereunder shall survive any investigation
made by or on behalf of any party hereto, but shall not survive the Closing
hereunder.

SECTION 8.02. Definition of Knowledge. For the purpose of this Agreement,
the Exhibits and Appendices to this Agreement, and the CMET Disclosure Schedule
and the TCI Disclosure Schedule, the phrases "to the best knowledge" of any
party and "known" and words of like effect shall mean to the knowledge of such
party and any officer, director, trustee or manager of any such party, as such
knowledge has been, or should have been obtained in the performance of their
duties in the ordinary course of business in a prudent and diligent manner,
which knowledge shall also include information existing in the records and
files of such party.

SECTION 8.03. Definition of Material Adverse Effect and Material Adverse
Change. "Material Adverse Effect" or "Material Adverse Change" means, with
respect to any party, any change, occurrence or effect (direct or indirect) on
the business, operations, properties (including tangible properties), condition
(financial or otherwise), assets, prospects (solely to the extent such
prospects are related to events specifically involving the affected party),
obligations or liabilities (whether absolute, contingent or otherwise and
whether due or to become due) of such party and its subsidiaries taken as a
whole that reasonably could be expected to exceed $5,000,000. "Material" or
"materially" or words of like effect shall (unless otherwise so provided)

B-34
<PAGE>

refer to items capable of producing a monetary effect of at least $5,000,000 on
the business, operations, properties (including intangible properties),
condition (financial or otherwise), assets, prospects (solely to the extent
such prospects are related to events specifically involving the affected
party), obligations or liabilities (whether absolute, contingent or otherwise
and whether due or to become due) of the relevant party and its subsidiaries
taken as a whole.

SECTION 8.04. Expenses, Taxes, Etc. Each of the parties hereto shall pay all
fees and expenses (including, without limitation, legal fees, accounting fees
and investment advisor, broker and/or agent fees) incurred by it or any of its
affiliates in connection with the transactions contemplated by this Agreement.

SECTION 8.05. Successors and Assigns. No party shall have the right to
assign all or any part of its interest in this Agreement without the prior
written consent of the other parties, and any attempted transfer without such
consent shall be null and void.

SECTION 8.06. No Third-Party Benefit. Nothing in this Agreement shall be
deemed to create any right or obligation in any Person not a party hereto and
this Agreement shall not be construed in any respect to be a contract or
agreement in whole or in part for the benefit of or binding upon any Person not
a party hereto.

SECTION 8.07. Entire Agreement; Amendment. This Agreement, the Exhibits, the
Appendices, the CMET Disclosure Schedule and the TCI Disclosure Schedule hereto
constitute the entire agreement among the parties hereto with respect to the
transactions contemplated herein and supersede all prior oral and written
agreements, memoranda, understandings and undertakings between the parties
hereto relating to the subject matter hereof. This Agreement may not be
modified, amended, altered or supplemented except by a written instrument
executed and delivered by each of the parties hereto.

SECTION 8.08. Reformation and Severability. If any provision of this
Agreement is held to be illegal, invalid or unenforceable under present or
future laws effective during the term hereof and such illegality, invalidity or
unenforceability does not result in a material failure of consideration, then;

(a) in lieu of such illegal, invalid or unenforceable provision, there
shall be added automatically as a part of this Agreement a provision as
similar in terms to such illegal, invalid or unenforceable provision as may
be possible and be legal, valid and enforceable; and

(b) the legality, validity and enforceability of the remaining
provisions hereof shall not in any way be affected or impaired thereby.

B-35
<PAGE>

SECTION 8.09. Notices. All notices, claims, certificates, requests, demands
and other communications hereunder shall be in writing and shall be deemed to
have been duly given if delivered personally, mailed (registered or certified
mail, postage prepaid, return receipt requested) or sent by facsimile
transmission as follows:

If to:

CMET
10670 N. Central Expressway
Suite 600
Dallas, Texas 75231
Attention: Robert A. Waldman
Fax: (214) 750-0779

If to:

TCI
10670 N. Central Expressway
Suite 600
Dallas, Texas 75231
Attention: Robert A. Waldman
Fax: (214) 750-0779

with a copy to:

Andrews & Kurth L.L.P.
1717 Main Street
Suite 3700
Dallas, Texas 75201
Attention: Thomas R. Popplewell
Fax: (214) 659-4401

or to such other address as the person to whom notice is to be given may have
previously furnished to the other in writing in the manner set forth above,
provided that notice of a change of address shall be deemed given only upon
receipt.

SECTION 8.10. Number and Gender. When the context in which words are used in
this Agreement indicates that such is the intent, words in the singular number
shall include the plural and the masculine gender shall include the neuter or
female gender as the context may require.

SECTION 8.11. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS,
WITHOUT REGARD TO ITS CONFLICTS OF LAW RULES.

SECTION 8.12. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.

B-36
<PAGE>

IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
parties hereto on the date first above written.

TCI:

TRANSCONTINENTAL REALTY INVESTORS,
INC.

/s/ Randall M. Paulson
By: _________________________________
Randall M. Paulson, President

/s/ Thomas A. Holland
By: _________________________________
Thomas A. Holland, Secretary

CMET:

CONTINENTAL MORTGAGE AND EQUITY
TRUST

/s/ Randall M. Paulson
By: _________________________________
Randall M. Paulson, President

/s/ Thomas A. Holland
By: _________________________________
Thomas A. Holland, Secretary

B-37
<PAGE>

APPENDIX I

CMET 1997 BALANCE SHEET

DECEMBER 31, 1997

[Incorporated by reference to
Continental Mortgage and Equity Trust
Report on Form 10-K for December 31, 1997]

B-38
<PAGE>

APPENDIX II

CMET 1998 FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 1998

[Incorporated by reference to
Continental Mortgage and Equity Trust
Report on Form 10-Q for June 30, 1998]

B-39
<PAGE>

APPENDIX III

TCI 1997 BALANCE SHEET

DECEMBER 31, 1997

[Incorporated by reference to
Transcontinental Realty Investors, Inc.
Report on Form 10-K for December 31, 1997]

B-40
<PAGE>

APPENDIX VI

TCI 1998 FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 1998

[Incorporated by reference to
Transcontinental Realty Investors, Inc.
Report on Form 10-Q for June 30, 1998]

B-41
<PAGE>

APPENDIX C

[LETTERHEAD OF WEDBUSH MORGAN SECURITIES]

September 21, 1998

Board of Directors
Transcontinental Realty Investors, Inc.
10670 N. Central Expressway
Suite 300
Dallas, Texas 75231

Members of the Board:

We understand that Transcontinental Realty Investors, Inc. ("TCI") and
Continental Mortgage and Equity Trust ("CMET") have entered into an agreement
as of September 21, 1998 pursuant to which CMET will be merged with and into
TCI, in a transaction (the "Merger") in which each outstanding share of CMET
common stock will be converted into the right to receive 1.181 shares (the
"Exchange Ratio") of the common stock of TCI. The terms and conditions of the
Merger are set forth in more detail in an agreement and Plan of Merger
("Agreement") by and among TCI and CMET.

You have asked us to recommend to TCI an exchange ratio for purposes of this
Merger and based upon the Exchange Ratio agreed to by the parties and contained
in the Agreement to deliver our opinion as to the fairness, from a financial
point of view (the "Opinion"), to the stockholders of TCI of the consideration
to be paid by TCI pursuant to the terms and subject to the conditions set forth
in the Agreement. The Opinion shall not address TCI's underlying business
decision to effect the Transaction. Other than recommending the Exchange Ratio
for the Transaction and rendering the Opinion, Wedbush Morgan Securities shall
not be responsible for any other services in connection with the Transaction.

Wedbush Morgan Securities is an investment banking firm and member of the
New York Stock Exchange and other principal stock exchanges in the United
States, and is regularly engaged as part of its business in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, private placements, secondary distributions of listed
and unlisted securities, and valuations for corporate, estate and other
purposes.

In arriving at our Opinion, we have reviewed and analyzed, among other
things: (1) A preliminary agreement and specific terms of the Merger, (2)
certain publicly available business and financial information relating to TCI
and CMET which we deemed to be relevant, (3) certain historical and projected
financial and operating information with respect to the business and operations
of TCI and CMET furnished to us by the Management Board of TCI and CMET, (4)
Appraisals of real estate assets of both TCI and CMET as prepared by the firm
of Marshall & Stevens, (5) the market prices, trading history, and valuation
multiples for the TCI Shares and CMET Shares and compared them relative to each
other, as well as with those of certain publicly traded companies that we
deemed to be relevant, (6) the proposed financial terms of the Merger and
compared them with the financial terms of certain other transactions which we
deemed to be relevant, and (7) other such financial studies and analyses and
took into account such other financial, economic and market criteria as we
deemed appropriate in arriving at our Opinion. In addition, we have had
discussions with the management of TCI and CMET concerning their respective
businesses, operations, assets, liabilities, financial conditions and
prospects, and their assessment of the potential cost savings, operating
synergies, revenue enhancements and strategic benefits.

With respect to the Marshall & Stevens appraisals, we have accepted without
independent investigation supplemental information and suggested adjustments
recommended by TCI and CMET. We understand that while Marshall & Stevens has
not reissued its appraisal it has been informed of this information and the
suggested adjustments and has raised no objections.

C-1
<PAGE>

In arriving at our Opinion, we have assumed and relied upon the accuracy and
completeness of all financial and other information and data used by us without
assuming any responsibility for independent investigation and verification of
such information. With respect to the financial projections of TCI and CMET, we
have been advised by management of TCI and CMET that such projections have been
reasonably prepared in good faith on a basis reflecting the best currently
available estimates and judgments of the respective management of TCI and CMET
regarding, among other items, management's assessment regarding the lack of
projected cost savings, operating synergies, and revenue enhancements expected
to result from a combination of the businesses, and that TCI, CMET and the
combined company will perform substantially in accordance with such
projections. We further assumed that all conditions of the Agreement will be
satisfied and not waived.

Our Opinion, as set forth herein, related to the relative values of TCI and
CMET. We are not expressing any opinion as to what the prices of TCI common
stock will trade or otherwise be transferable subject to the Merger. We have
not made any physical inspection of the properties or assets of TCI or CMET. We
were not requested to consider, and our Opinion does not address, the relative
merits of the Merger as compared to any alternative business strategies that
might exist for TCI of the effect of any other transaction in which TCI might
engage. We express no opinion regarding the tax accounting consequences of the
Merger to TCI or the stockholders of TCI.

Our Opinion is based upon financial, economic, market and other conditions
as in effect on, and the information made available to us as of, the date
hereof. Events occurring after the date hereof could materially affect the
assumptions used in preparing this Opinion. We have not undertaken to update,
reaffirm or revise this opinion or otherwise comment upon any events occurring
after the date hereof.

We have acted as TCI's financial advisor in connection with the Merger and
will receive a fee for our services, a significant portion of which is
contingent upon the delivery of the Opinion. In the ordinary course of our
business, we and our affiliates may hold or actively trade the common stock of
TCI and/or CMET for our own account and for the accounts of our customers and,
accordingly, may at any time hold a long or short position in TCI and/or CMET
common stock.

It is understood that this letter is for the information of the Board of
Directors of Transcontinental Realty Investors, Inc. in its evaluation of the
Merger and may not be used for any other purpose without our prior written
consent. We hereby consent, however, to the inclusion of this Opinion as an
exhibit to any proxy statement distributed in connection to the Merger. Our
Opinion is not intended to be and does not constitute a recommendation to any
stockholder as to how such stockholder should vote on any matter relating to
the proposed Merger.

Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and such other matters as we consider
relevant, it is our Opinion that, as the date hereof, the Exchange Ratio is
fair, from a financial point of view, to TCI.

Very truly yours,

/s/ Michael G. Gardner

WEDBUSH MORGAN SECURITIES
By: Michael G. Gardner, CFA
Managing Director
Capital Markets

C-2
<PAGE>

APPENDIX D

[LETTERHEAD OF SUTRO & CO.]

September 21, 1998

Board of Trustees of Continental Mortgage and Equity Trust
10670 North Central Expressway, Suite 300
Dallas, Texas 75231

Gentlemen:

You have requested Sutro & Co., Inc.'s ("Sutro & Co.") opinion as investment
bankers as to the fairness, from a financial point of view, of the exchange
ratio (the "Exchange Ratio") of shares of common stock of Transcontinental
Realty Investors, Inc. ("Transcontinental") to be received by the shareholders
of shares of beneficial interest of Continental Mortgage and Equity Trust
("Continental" or the "Company") in connection with the proposed merger (the
"Transaction") of Continental with and into Transcontinental.

Sutro & Co. has been advised by the Board of Trustees of the Company that in
connection with the proposed Transaction shareholders of Continental will
receive 1.181 shares of Transcontinental's $0.01 par value common stock per
share of Continental's no par value shares of beneficial interest.

Sutro & Co., in conducting its review and arriving at its opinion, noted
that the Exchange Ratio in the Transaction is based on, in part, appraisals of
the real estate properties of both the Company and Transcontinental prepared by
Marshall & Stevens Incorporated dated August 13th, 1998 with a valuation date
of July 1, 1998 (the "Appraisals"). Sutro noted that the information provided
by Marshall and Stevens Incorporated in the Appraisals included a combination
of complete summary appraisals, desktop analysis relying solely on the income
capitalization approach and third party appraisals that were recently completed
by disinterested third parties. Additionally, Sutro noted that the management
of both the Company and Transcontinental did not project any overhead expense
or other expense savings as a result of the Transaction. As a result, Sutro has
assumed no overhead expense or other expense savings as a result of the
Transaction.

Based upon and subject to the foregoing and following, Sutro & Co. is of the
opinion, as investment bankers, that, as of the date hereof, the Exchange Ratio
of shares of common stock of Transcontinental to be received by the
shareholders of shares of beneficial interest of Continental in connection with
the Transaction is fair, from a financial point of view, to the shareholders of
the Company.

Sutro & Co., as part of its investment banking business, is regularly
engaged in the evaluation of capital structures, the valuation of businesses
and their securities in connection with mergers and acquisitions, firm
commitment underwritings, secondary distributions of listed and unlisted
securities, private placements, financial restructurings and other financial
services. Sutro & Co. is currently acting as a fairness opinion provider to the
Board of Trustees of Continental in connection with the proposed Transaction
and will receive a fee for delivering this opinion. The Company has agreed to
indemnify Sutro & Co. against certain liabilities arising out of or in
connection with the services rendered by Sutro & Co. under such engagement.
Sutro & Co., in the ordinary course of business, may in the future trade
securities of the Company or Transcontinental for its own account or for the
accounts of its customers, and accordingly, may at any time hold a long or
short position in those securities.

Sutro & Co., in arriving at its opinion, reviewed and analyzed, among other
things, the following:

(i) Annual Reports and Reports on Form 10-K for the years ended December
31, 1996 and December 31, 1997 for the Company and Transcontinental,

(ii) Quarterly Reports on Form 10-Q for the six month period ended June
30, 1998 for the Company and Transcontinental,

(iii) certain internal information, primarily financial in nature
(including analytical models, projections, forecasts, estimates and
analyses) prepared by or on behalf of the management of the

D-1
<PAGE>

Company and Transcontinental, including financial projections covering the
years 1998 through 2002 for both the Company and Transcontinental,

(iv) the Appraisals,

(v) certain other publicly available business, financial and other
information concerning the Company and Transcontinental, and

(vi) such other information which Sutro & Co. deemed to be relevant to
provide the fairness opinion.

In the course of Sutro & Co.'s engagement, Sutro & Co. held discussions with
the senior management of the Company and Transcontinental concerning the
historical, current and projected future operations, business plans, financial
conditions and results, and prospects of the both the Company and
Transcontinental. Sutro & Co. has not, however, independently verified the
accuracy or completeness of the Appraisals or independently appraised any
particular assets or conducted any inspections of the properties of the Company
or Transcontinental.

In conducting its review, Sutro & Co. has relied upon and assumed the
accuracy and completeness of the financial and other information, including the
Appraisals, provided to Sutro & Co. or which were publicly available and have
not attempted to verify the same. Sutro & Co. has relied upon the statements
and information provided by the management of the Company and Transcontinental
as to the reasonableness and achievability of the financial and operating
forecasts and projections that project future results of the Company and
Transcontinental (and the assumptions and bases therefor) provided to Sutro &
Co. The financial models and the financial projections that were provided by
the management of the Company and Transcontinental are inherently subject to
uncertainty; however, Sutro & Co. has assumed that such forecasts and
projections were prepared in good faith, upon reasonable estimates and
represent the best judgment of the management of the Company and
Transcontinental as to the future performance of the Company and
Transcontinental.

In rendering its opinion, Sutro & Co. notes that the consummation of the
proposed Transaction is conditioned upon, among other things, the approval of
the majority of the shareholders of both Company and Transcontinental. Sutro &
Co. is not recommending or disapproving of any action that may be taken by the
Company, its Trustees, its shareholders or any other person in regard to the
Transaction. This opinion does not constitute a recommendation of the proposed
Transaction over any alternative transactions which may be possible for the
Company and does not address the Company's underlying business decision to
effect the proposed Transaction. Furthermore, our analysis in this matter has
not considered any other aspect of the proposed Transaction or any agreement or
other matters, which include, but are not limited to, the terms of all external
service agreements with affiliates of the Company and Transcontinental. Sutro &
Co. was not asked to opine on and is not expressing an opinion as to: (i) the
terms of the Transaction other than the Exchange Ratio, (ii) the tax
consequences of the Transaction to the shareholders of the Company, and (iii)
the prices at which the Company's or Transcontinental's securities may trade at
in the future.

In connection with this opinion, Sutro has assumed that the Board of
Trustees of the Company has completed all of the appropriate and necessary
procedures and actions relating to recommending to the shareholders of the
Company the proposed Transaction and we have assumed that the documents to be
prepared and used to effect the Transaction will reflect substantially the
terms set forth in the Agreement and Plan of Merger between the Company and
Transcontinental and that all parties to such agreement are duly authorized to
execute such agreement. Sutro has not participated in the negotiation of the
Transaction or provided any legal or other advice with respect to the
Transaction.

Sutro & Co.'s opinion is necessarily based upon market, economic, financial
and other conditions as they exist and can be evaluated as of the date hereof
and the information made available to Sutro & Co. as of the dates that such
information was prepared and based upon.

The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description.
Accordingly, Sutro & Co. has advised the Company that its entire analysis

D-2
<PAGE>

must be considered as a whole and that the review of selected portions of its
analyses and the factors considered by it, without considering all analyses and
factors, could create an incomplete view of the evaluation process underlying
its opinion.

It is understood and agreed that this opinion is provided solely for the use
of the Board of Trustees of the Company as one element of their consideration
of the Transaction, and may not be used for any other purpose or any other
party, or otherwise referred to, relied upon, quoted, summarized or circulated,
except with Sutro & Co.'s prior written consent. This opinion may be reproduced
in full in the Company's Prospectus/Consent Solicitation Statement pertaining
to the Transaction.

/s/ Sutro & Co., Inc.

Sutro & Co., Inc.

D-3
<PAGE>

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. THIS JOINT PROXY STATEMENT/PROSPECTUS CONSTITUTES
NEITHER AN OFFER TO SELL, NOR A SOLICITATION OF AN OFFER TO PURCHASE, THE
SECURITIES OFFERED BY THIS JOINT PROXY STATEMENT/PROSPECTUS, NOR THE
SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO OR FROM
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN OFFER OR PROXY
SOLICITATION IN SUCH JURISDICTION.

----------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary.................................................................. 2
Risk Factors............................................................. 15
General Shareholder Information.......................................... 22
Proposed Incorporation Procedure and Merger.............................. 25
General Provisions of the Merger Agreement............................... 68
Market Prices of the Shares; Dividends; Comparative Per Share Market
Price................................................................... 72
Business and Properties of TCI........................................... 74
Business and Properties of the Trust..................................... 100
Selected Historical Consolidated Financial Information................... 123
Trust Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................... 128
TCI Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................... 136
Legal Matters............................................................ 144
Experts.................................................................. 144
Available Information.................................................... 144
Incorporation of Certain Documents by Reference.......................... 144
Solicitation of Proxies.................................................. 146
</TABLE>

DURING THE 25-DAY PERIOD FOLLOWING THE EFFECTIVE TIME OF THE MERGER, ALL
DEALERS EFFECTING TRANSACTIONS IN THE SHARES OF COMMON STOCK OF TCI, WHETHER
OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A COPY
OF THIS JOINT PROXY STATEMENT/PROSPECTUS.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

CONTINENTAL MORTGAGE AND EQUITY TRUST

AND

TRANSCONTINENTAL REALTY INVESTORS, INC.

----------------

JOINT PROXY STATEMENT

----------------

TRANSCONTINENTAL REALTY INVESTORS, INC.

----------------

PROSPECTUS

----------------

4,744,254 SHARES

OF COMMON STOCK

(PAR VALUE $0.01 PER SHARE)

, 1999

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Articles of Incorporation and By-Laws of TCI provide, in substance, that
TCI shall indemnify its directors, officers, and employees to the fullest
extent permitted by the Nevada Revised Statutes (the "NRS") and other
applicable law. Section 78.751 of the Nevada Revised Statutes permits
indemnification of officers, directors, employees and agents under certain
conditions and subject to certain limitations. Pursuant to the NRS, a
corporation may indemnify persons for expenses related to an action, suit or
proceeding, except an action by or in the right of the corporation, by reason
of the fact that such person is or was a director, officer, employee or agent,
if such person acted in good faith and in a manner which he reasonably believed
to be in or not opposed to the best interests of the corporation, and with
respect to any criminal action or proceeding, if such person had no reasonable
cause to believe his conduct was unlawful. The expenses indemnified against in
this provision include attorneys' fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred in connection with the action, suit
or proceeding. The NRS further provides that a corporation may indemnify
persons for attorneys' fees related to an action, suit or proceeding by or in
the right of the corporation to procure a judgment in its favor by reason of
the fact that such person is or was a director, officer, employee or agent, if
such person acted in good faith and in a manner which he reasonably believed to
be in or not opposed to the best interests of the corporation. The corporation
may also indemnify directors for amounts paid in judgments and settlements in
such a suit, but only if ordered by a court after determining that the person
is "fairly and reasonably" entitled to indemnity.

The Trust maintains liability insurance for each of its officers and
Trustees.

Currently, each of the Trustees of the Trust has been offered contractual
indemnification to the fullest extent permitted by the Declaration of Trust or
to the fullest extent not prohibited under applicable law.

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits:

The following exhibits are filed as part of this Registration Statement:

II-1
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
* 3.6 Restated Trustees' Regulations of Continental Mortgage and Equity
Trust (as amended to date)
* 3.7 Form of Articles of Incorporation of Continental Mortgage and Equity
Corporation
* 3.8 Form of By-Laws of Continental Mortgage and Equity Corporation
* 5.1 Opinion of Kummer Kaempfer Bonner & Renshaw regarding legality of the
shares of Transcontinental Realty Investors, Inc. common stock being
offered
* 8.1 Opinion of Andrews & Kurth L.L.P. regarding tax matters
10.1 Advisory Agreement dated as of October 15, 1998 between Continental
Mortgage and Equity Trust and Basic Capital Management, Inc.
(incorporated by reference as Exhibit No. 10.0 to Continental Mortgage
and Equity Trust's Report on Form 10-Q for the quarter ended September
30, 1998)
*10.2 Brokerage Agreement dated as of February 11, 1997 between Continental
Mortgage and Equity Trust and Carmel Realty, Inc.
*10.3 Property Management Agreement (Residential) dated as of February 1,
1998, between Continental Mortgage and Equity Trust and Carmel Realty,
Inc.
*10.4 Property Management Agreement (Commercial) dated as of February 1,
1998, between Continental Mortgage and Equity Trust and Carmel Realty,
Inc.
10.5 Advisory Agreement dated as of October 15, 1998 between
Transcontinental Realty Investors, Inc. and Basic Capital Management,
Inc. (incorporated by reference as Exhibit No. 10 to Transcontinental
Realty Investors, Inc.'s Report on Form 10-Q for the quarter ended
September 30, 1998)
*10.6 Brokerage Agreement dated as of February 11, 1997 between
Transcontinental Realty Investors, Inc. and Carmel Realty, Inc.
*10.7 Property Management Agreement (Residential) dated as of February 1,
1998, between Transcontinental Realty Investors, Inc. and Carmel
Realty, Inc.
*10.8 Property Management Agreement (Commercial) dated as of February 1,
1998, between Transcontinental Realty Investors, Inc. and Carmel
Realty, Inc.
*23.1 Consent of BDO Seidman, LLP, independent certified public accountants
(for Transcontinental Realty Investors, Inc. financial statements)
*23.2 Consent of BDO Seidman, LLP, independent certified public accountants
(for Continental Mortgage and Equity Trust financial statements)
*23.3 Consent of Farmer, Fuqua, Hunt & Munselle, P.C., independent
accountants
*23.4 Consent of Andrews & Kurth L.L.P. (included as part of Exhibit 8.1)
*23.5 Consent of Kummer Kaemper Bonner & Renshaw (included as part of
Exhibit 5.1)
*24.1 Power of Attorney (set forth on the signature page to the Registration
Statement)
*99.1 Form of Proxy Card--Transcontinental Realty Investors, Inc.
*99.2 Form of Proxy Card--Continental Mortgage and Equity Trust
*99.3 Fairness Opinion of Wedbush Morgan Securities (included herewith as
Appendix C)
*99.4 Fairness Opinion of Sutro & Co. (included herewith as Appendix D)
</TABLE>
- --------
* Filed herewith.

ITEM 22. UNDERTAKINGS

The undersigned registrants hereby undertake:

(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 (the "Act");

(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement; and

II-2
<PAGE>

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;

(b) That, for the purpose of determining any liability under the Act, each
such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof;

(c) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering (in the event the Incorporation Procedure and the Merger are not
approved by the shareholders of the Trust or the shareholders of TCI);

(d) That, prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form;

(e) that every Prospectus (i) that is filed pursuant to paragraph (d)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to the
Registration Statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Act, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof;

(f) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrants have been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable; in the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue;

(g) To respond to requests for information that is incorporated by reference
into the Prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form, within
one business day of receipt of such request, and to send the incorporated
documents by first-class mail or other equally prompt means; this includes
information contained in documents filed subsequent to the effective date of
the Registration Statement through the date of responding to the request; and

(h) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it
became effective.

II-3
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANTS HAVE
DULY CAUSED THIS REGISTRATION STATEMENT ON FORM S-4 TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF DALLAS, STATE OF
TEXAS, ON JANUARY 12, 1999.

Continental Mortgage and Equity
Trust

/s/ Randall M. Paulson
By: _________________________________
RANDALL M. PAULSON, PRESIDENT

Transcontinental Realty Investors,
Inc.

/s/ Randall M. Paulson
By: _________________________________
RANDALL M. PAULSON, PRESIDENT

POWER OF ATTORNEY

EACH PERSON WHOSE SIGNATURE APPEARS BELOW DOES HEREBY MAKE, CONSTITUTE AND
APPOINT RANDALL M. PAULSON AND ROBERT A. WALDMAN AND EACH OF THEM HIS TRUE AND
LAWFUL ATTORNEY WITH FULL POWER OF SUBSTITUTION TO EXECUTE, DELIVER AND FILE
WITH THE SECURITIES AND EXCHANGE COMMISSION, FOR AND ON HIS BEHALF, AND IN HIS
CAPACITY OR CAPACITIES AS STATED BELOW, ANY AMENDMENT (INCLUDING POST-EFFECTIVE
AMENDMENTS) TO THE REGISTRATION STATEMENT WITH ALL EXHIBITS THERETO, MAKING
SUCH CHANGES IN THE REGISTRATION STATEMENT AS CONTINENTAL MORTGAGE AND EQUITY
TRUST DEEMS APPROPRIATE.

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT ON FORM S-4 HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED:

CONTINENTAL MORTGAGE AND EQUITY TRUST

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----

<S> <C> <C>
/s/ Randall M. Paulson President (Principal January 12, 1999
______________________________________ Executive Officer)
RANDALL M. PAULSON

/s/ Thomas A. Holland Executive Vice President January 12, 1999
______________________________________ and Chief Financial
THOMAS A. HOLLAND Officer (Principal
Financial and Accounting
Officer)

/s/ Ted P. Stokely Trustee January 12, 1999
______________________________________
TED P. STOKELY

/s/ Martin L. White Trustee January 12, 1999
______________________________________
MARTIN L. WHITE

</TABLE>

II-4
<PAGE>

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----

<S> <C> <C>
/s/ Richard W. Douglas Trustee January 12, 1999
______________________________________
RICHARD W. DOUGLAS

/s/ Edward G. Zampa Trustee January 12, 1999
______________________________________
EDWARD G. ZAMPA

/s/ Larry E. Harley Trustee January 12, 1999
______________________________________
LARRY E. HARLEY

/s/ R. Douglas Leonhard Trustee January 12, 1999
______________________________________
R. DOUGLAS LEONHARD

/s/ Murray Shaw Trustee January 12, 1999
______________________________________
MURRAY SHAW
</TABLE>

POWER OF ATTORNEY

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT ON FORM S-4 HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED:

TRANSCONTINENTAL REALTY INVESTORS, INC.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----

<S> <C> <C>
/s/ Randall M. Paulson President (Principal January 12, 1999
______________________________________ Executive Officer)
RANDALL M. PAULSON

/s/ Thomas A. Holland Executive Vice President January 12, 1999
______________________________________ and Chief Financial
THOMAS A. HOLLAND Officer (Principal
Financial and Accounting
Officer)

/s/ Ted P. Stokely Director January 12, 1999
______________________________________
TED P. STOKELY

/s/ Martin L. White Director January 12, 1999
______________________________________
MARTIN L. WHITE
</TABLE>

II-5
<PAGE>

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----

<S> <C> <C>
/s/ Richard W. Douglas Director January 12, 1999
______________________________________
RICHARD W. DOUGLAS

/s/ Edward G. Zampa Director January 12, 1999
______________________________________
EDWARD G. ZAMPA

/s/ Larry E. Harley Director January 12, 1999
______________________________________
LARRY E. HARLEY

/s/ R. Douglas Leonhard Director January 12, 1999
______________________________________
R. DOUGLAS LEONHARD

/s/ Murray Shaw Director January 12, 1999
______________________________________
MURRAY SHAW
</TABLE>

II-6
<PAGE>

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
* 2.1 Agreement and Plan of Merger by and between Continental Mortgage and
Equity Trust and Transcontinental Realty Investors, Inc. dated
November 18, 1998 (included herewith as Appendix B)
3.1 Articles of Incorporation of Transcontinental Realty Investors, Inc.,
as filed on December 20, 1991 (incorporated by reference to Exhibit
No. 3.1 to Transcontinental Realty Investors, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1991)
3.2 Certificate of Amendment to the Articles of Incorporation of
Transcontinental Realty Investors, Inc., as filed on June 3, 1996
(incorporated by reference to Transcontinental Realty Investors,
Inc.'s report on Form 8-K, dated June 3, 1996)
* 3.3 Certificate of Designation of Transcontinental Realty Investors, Inc.
Setting Forth the Voting Powers, Designations, Preferences,
Limitations, Restrictions and Relative Rights of Series A Cumulative
Convertible Preferred Stock, dated October 30, 1998
3.4 By-Laws of Transcontinental Realty Investors, Inc. (incorporated by
reference to Exhibit No. 3.2 to Transcontinental Realty Investors,
Inc.'s Annual Report on Form 10-K for the year ended December 31,
1991)
* 3.5 Second Amended and Restated Declaration of Trust of Continental
Mortgage and Equity Trust (as amended to date)
* 3.6 Restated Trustees' Regulations of Continental Mortgage and Equity
Trust (as amended to date)
* 3.7 Form of Articles of Incorporation of Continental Mortgage and Equity
Corporation
* 3.8 Form of By-Laws of Continental Mortgage and Equity Corporation
* 5.1 Opinion of Kummer Kaempfer Bonner & Renshaw regarding legality of the
shares of Transcontinental Realty Investors, Inc. common stock being
offered
* 8.1 Opinion of Andrews & Kurth L.L.P. regarding tax matters
10.1 Advisory Agreement dated as of October 15, 1998 between Continental
Mortgage and Equity Trust and Basic Capital Management, Inc.
(incorporated by reference as Exhibit No. 10.0 to Continental Mortgage
and Equity Trust's Report on Form 10-Q for the quarter ended September
30, 1998)
*10.2 Brokerage Agreement dated as of February 11, 1997 between Continental
Mortgage and Equity Trust and Carmel Realty, Inc.
*10.3 Property Management Agreement (Residential) dated as of February 1,
1998, between Continental Mortgage and Equity Trust and Carmel Realty,
Inc.
*10.4 Property Management Agreement (Commercial) dated as of February 1,
1998, between Continental Mortgage and Equity Trust and Carmel Realty,
Inc.
10.5 Advisory Agreement dated as of October 15, 1998 between
Transcontinental Realty Investors, Inc. and Basic Capital Management,
Inc. (incorporated by reference as Exhibit No. 10 to Transcontinental
Realty Investors, Inc.'s Report on Form 10-Q for the quarter ended
September 30, 1998)
*10.6 Brokerage Agreement dated as of February 11, 1997 between
Transcontinental Realty Investors, Inc. and Carmel Realty, Inc.
*10.7 Property Management Agreement (Residential) dated as of February 1,
1998, between Transcontinental Realty Investors, Inc. and Carmel
Realty, Inc.
*10.8 Property Management Agreement (Commercial) dated as of February 1,
1998, between Transcontinental Realty Investors, Inc. and Carmel
Realty, Inc.
*23.1 Consent of BDO Seidman, LLP, independent certified public accountants
(for Transcontinental Realty Investors, Inc. financial statements)
*23.2 Consent of BDO Seidman, LLP, independent certified public accountants
(for Continental Mortgage and Equity Trust financial statements)
*23.3 Consent of Farmer, Fuqua, Hunt & Munselle, P.C., independent
accountants
*23.4 Consent of Andrews & Kurth L.L.P. (included as part of Exhibit 8.1)
*23.5 Consent of Kummer Kaemper Bonner & Renshaw (included as part of
Exhibit 5.1)
*24.1 Power of Attorney (set forth on the signature page to the Registration
Statement)
</TABLE>

II-7
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
*99.1 Form of Proxy Card--Transcontinental Realty Investors, Inc.
*99.2 Form of Proxy Card--Continental Mortgage and Equity Trust
*99.3 Fairness Opinion of Wedbush Morgan Securities (included herewith as
Appendix C)
*99.4 Fairness Opinion of Sutro & Co. (included herewith as Appendix D)
</TABLE>
- --------
* Filed herewith.

II-8

<PAGE>

EXHIBIT 3.3

CERTIFICATE OF DESIGNATION

TRANSCONTINENTAL REALTY INVESTORS, INC.

setting forth the

VOTING POWERS, DESIGNATIONS, PREFERENCES, LIMITATIONS, RESTRICTIONS
AND RELATIVE RIGHTS

SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK

(Pursuant to Section 78.1955 of
the Nevada Revised Statutes)

----------------------------------------

Pursuant to Section 78.1955 of the Nevada Revised Statutes ("NRS"), the
undersigned, being the President and Secretary, respectively, of
Transcontinental Realty Investors, Inc. (the "Corporation"), a Nevada
corporation, hereby certify that (a) the following resolution was duly adopted
on October 20, 1998, by the Board of Directors of the Corporation (the "Board"),
for the purposes of establishing a separate series of the Corporation's
authorized preferred stock, $0.01 par value ("Preferred Stock") and fixing the
relative rights and preferences of such series of Preferred Stock, and (b) such
resolution has not been subsequently modified or rescinded:

RESOLVED, that in accordance with the provisions of ARTICLE FOURTH of
the Articles of Incorporation of the Corporation, a series of Preferred Stock
be, and hereby is, created, and the voting powers, designations, preferences,
limitations, restrictions and relative, participating, optional or other special
rights of the shares of such series, and the qualifications, limitations or
restrictions thereof, be, and hereby are, as follows:

Section 1. Designation and Amount. The shares of such series shall be
designated as "Series A Cumulative Convertible Preferred Stock" (the "Series A
Stock") and each share of the Series A Stock shall have a par value of $0.01 per
share and a preference on liquidation as specified in Section 6 below. The
number of shares constituting the Series A Stock shall be 6,000. Such number of
shares may be increased or decreased by the Board by filing an amendment to this
Certificate of Designation, provided, however, that no decrease shall reduce the
number of shares of Series A Stock to a number less than the number of shares
then outstanding plus the number of shares reserved for issuance upon the
exercise of outstanding options, rights or warrants.

Section 2. Dividends and Distributions.
<PAGE>

(A) The holders of Series A Stock shall be entitled to receive, when,
as, and if declared by the Board and to the extent permitted under the NRS, out
of funds legally available for the purpose and in preference to and with
priority over dividends upon all Junior Securities (as defined in Section 6
below), quarterly cumulative dividends payable in arrears in cash on the tenth
day following the end of each calendar quarter, unless such day is a Saturday,
Sunday or holiday, in which case such dividends shall be payable on the next
succeeding business day (each such date being referred to herein as a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date
after the first issuance of a share or fraction of a share of Series A Stock, in
an amount per share (rounded to the next highest cent) equal to 5% per annum of
the Liquidation Value (as defined in Section 6 below), as determined immediately
prior to the beginning of such calendar quarter assuming each year consists of
360 days and each quarter consists of 90 days.

(B) Dividends shall commence accruing cumulatively on outstanding
shares of the Series A Stock from the date of issuance of such shares to and
including the date on which the Redemption Price (as defined in Section 9(A)
below) of such shares is paid, whether or not such dividends have been declared
and whether or not there are profits, surplus or other funds of the Corporation
legally available for the payment of such dividends. For purposes of this
Section 2, the date on which the Corporation has issued any share of Series A
Stock is its date of issuance, regardless of the number of times a transfer of
such share is made on the stock records maintained by or for the Corporation and
regardless of the number of certificates that may be issued to evidence such
share (whether by reason of transfer of such share or for any other reason).
Dividends paid on the shares of Series A Stock in an amount less than the total
amount of dividends at the time accrued and payable on such shares shall be
allocated among the holders of such shares in proportion to their respective
Unpaid Accrual Amounts, where for this purpose the "Unpaid Accrual Amount" of a
holder of shares of Series A Stock at any time equals the total of accrued
unpaid dividends on all such shares held by such holder. The Board may fix a
record date for the determination of holders of shares of Series A Stock
entitled to receive payment of a dividend or distribution declared thereon other
than a quarterly dividend paid on the Quarterly Dividend Payment Date
immediately after such dividend accrued, which record date shall be not more
than fifty (50) days prior to the date fixed for the payment thereof.

(C) So long as any shares of the Series A Stock are outstanding, the
Corporation will not make, directly or indirectly, any distribution (as such
term is defined in the NRS) with respect to Junior Securities unless, on the
date specified for measuring such distribution, (a) all accrued dividends on the
Series A Stock for all past quarterly dividend periods have been paid in full
and the full amount of accrued dividends for the then current quarterly dividend
period has been paid or declared and a sum sufficient for the payment thereof
set apart and (b) after giving effect to such distribution (i) the Corporation
would not be rendered unable to pay its debts as they become due in the usual
course of business; and (ii) the Corporation's total assets would not be less
than the sum of its total liabilities plus the amount that would be needed, if
the Corporation were to be dissolved at the time of the distribution, to satisfy
the preferential rights upon dissolution of the holders of the Series A Stock as
provided in this Certificate of Designation. Dividends shall not be paid (in
full or in part) or declared and set apart for payment (in full or in part) on
any series of Preferred Stock (including the Series A Stock) for any dividend
period unless all dividends, in the case dividends are
<PAGE>

being paid in full on the Series A Stock, or a ratable portion of all dividends
(i.e., so that the amount paid on each share of each series of Preferred Stock
as a percentage of total accrued and unpaid dividends for all periods with
respect to each such share is equal), in the case dividends are not being paid
in full on the Series A Stock, have been or are, contemporaneously, paid and
declared and set apart for payment on all outstanding series of Preferred Stock
(including the Series A Stock) entitled thereto for each dividend period
terminating on the same or earlier date. If at any time the Corporation pays
less than the total amount of dividends then accrued with respect to the Series
A Stock, such payment will be distributed ratably among the then holders of
Series A Stock so that an equal amount is paid with respect to each outstanding
share.

Section 3. Conversion Rights.

(A) The Series A Stock may be converted at any time and from time to
time in whole or in part after November 1, 2003, at the option of the holders
thereof, in accordance with subsection (D) below at the Conversion Price (as
defined in subsection (B) below) into fully paid and nonassessable shares of
common stock, $.01 par value, of the Corporation ("Common Stock"). The number of
shares of Common Stock to be issued pursuant to such conversion shall be equal
to the number of shares offered for conversion multiplied by the Liquidation
Value per share and divided by the Conversion Price; provided, however, that (1)
as to any shares of Series A Stock which shall have been called for redemption
pursuant to Section 9, the right of conversion shall terminate upon receipt by
the holder of the notice of redemption from the Corporation and (2) on the
earlier of (a) the commencement of any liquidation, dissolution or winding up of
the Corporation by the filing with the Secretary of State of the State of Nevada
or with a federal bankruptcy court or (b) the adoption by the stockholders of
the Corporation of any resolution authorizing the commencement thereof, the
right of conversion shall terminate. Notwithstanding anything to the contrary
herein provided, the Corporation may elect to redeem the shares of Series A
Stock sought to be converted, pursuant to Section 9 hereunder, instead of
issuing shares of Common Stock in replacement thereof, in accordance with the
provisions of Section 3(D) below.

(B) For purposes of this Section 3, the term "Conversion Price" shall
be and mean the simple average of the daily closing price of the Common Stock
for the closing sale price for the five (5) Business Days immediately prior to
the date of conversion on the New York Stock Exchange or, if the Common Stock is
not then being traded on the New York Stock Exchange, then on the principal
stock exchange (including without limitation The Nasdaq Stock Market) on which
the Common Stock is then listed or admitted to trading as determined by the
Corporation ("Principal Stock Exchange") or, if the Common Stock is not then
listed or admitted to trading on a Principal Stock Exchange, the average of the
last reported closing bid and asked prices on such days in the over-the-counter
market or, if no such prices are available, the fair market value per share of
the Common Stock, as determined by the Board in its sole discretion. The
Conversion Price shall not be subject to any adjustment as a result of the
issuance of any additional shares of Common Stock by the Corporation for any
purpose, except for stock splits (whether accomplished by stock dividends or
otherwise) or reverse stock splits occurring during the five (5) Business Days
referenced in the calculation of the Conversion Price. For purposes of
calculating the Conversion Price, the term "Business Day" shall mean a day on
which the Principal Stock Exchange is open for business
<PAGE>

or, if no such exchange, the term "Business Day" shall have the meaning given
such term in Section 3(D) below.

(C) Upon any conversion, fractional shares of Common Stock shall not
be issued but any fractions shall be adjusted by the delivery of one additional
share of Common Stock in lieu of any cash. Any accrued but unpaid dividends
shall be convertible into shares of Common Stock as provided for in this
Section. The Corporation shall pay all issue taxes, if any, incurred in respect
to the issuance of Common Stock on conversions, provided, however, that the
Corporation shall not be required to pay any transfer or other taxes incurred by
reason of the issuance of such Common Stock in names other than those in which
the Series A Stock surrendered for conversion may stand.

(D) Any conversion of Series A Stock into Common Stock shall be made
by the surrender to the Corporation, at the office of the Corporation set forth
in Section 11 hereof or at the office of the transfer agent for such shares, of
the certificate or certificates representing the Series A Stock to be converted,
duly endorsed or assigned (unless such endorsement or assignment be waived by
the Corporation) together with a written request for conversion. The Corporation
shall either (i) issue as of the date of receipt by the Corporation of such
surrender shares of Common Stock calculated as provided above and evidenced by a
stock certificate delivered to the holder as soon as practicable after the date
of such surrender; or (ii) within two (2) Business Days (unless otherwise
provided, "Business Day" herein shall mean any day other than a Saturday, a
Sunday or a day on which banking institutions in Dallas, Texas are authorized or
obligated by law or executive order to remain closed) after the date of such
surrender advise the holder of the Series A Stock that the Corporation is
exercising its option to redeem the Series A Stock pursuant to Section 9, in
which case the Corporation shall have sixty (60) days from the date of such
surrender to pay to the holder cash in an amount equal to the Redemption Price
(as defined in Section 9(A) below) for each share of Series A Stock so redeemed.
The date of surrender of any Series A Stock shall be the date of receipt by the
Corporation or its agent of such surrendered shares of Series A Stock.

(E) A number of authorized shares of Common Stock sufficient to
provide for the conversion of the Series A Stock outstanding upon the basis
hereinbefore provided shall at all times be reserved for such conversion. If the
Corporation shall propose to issue any securities or to make any change in its
capital structure which would change the number of shares of Common Stock into
which each share of Series A Stock shall be convertible as herein provided, the
Corporation shall at the same time also make proper provision so that thereafter
there shall be a sufficient number of shares of Common Stock authorized and
reserved for conversion of the outstanding Series A Stock on the new basis.

(F) In case the Corporation shall propose at any time before all
shares of the Series A Stock have been redeemed by the Corporation or converted
into Common Stock:

(i) to pay any dividend on the Common Stock outstanding
payable in Common Stock or to make any other distribution, other than
cash dividends to the holders of the Common Stock outstanding; or
<PAGE>

(ii) to offer for subscription to the holders of the Common
Stock outstanding any additional shares of any class or any other
rights or option; or

(iii) to effect any re-classification or recapitalization of
the Common Stock outstanding involving a change in the Common Stock,
other than a subdivision or combination of the Common Stock
outstanding; or

(iv) to merge or consolidate with or into any other corporation
(unless the Corporation is the surviving entity and holders of Common
Stock continue to hold such Common Stock without modification and
without receipt of any additional consideration), or to sell, lease, or
convey all or substantially all its property or business, or to
liquidate, dissolve or wind up;

then, in each such case, the Corporation shall mail to the holders of record of
each of the shares of Series A Stock at their last known address as shown by the
Corporation's records a statement, signed by an officer of the Corporation, with
respect to the proposed action. Such statement shall be so mailed at least
thirty (30) days prior to the date of the taking of such action or the record
date for holders of the Common Stock for the purposes thereof, whichever is
earlier. If such statement relates to any proposed action referred to in clauses
(iii) or (iv) of this subsection (G), it shall set forth such facts with respect
thereto as shall reasonably be necessary to inform the holders of the Series A
Stock as to the effect of such action upon the conversion rights of such
holders.

Section 4. Voting Rights and Powers. The holders of shares of Series A Stock
shall have only the following voting rights:

(A) Except as may otherwise be specifically required by law or
otherwise provided herein, the holders of the shares of Series A Stock
shall not have the right to vote such stock, directly or indirectly, at
any meeting of the stockholders of the Corporation, and such shares of
stock shall not be counted in determining the total number of
outstanding shares to constitute a quorum at any meeting of
stockholders.

(B) In the event that, under the circumstances, the holders of the
Series A Stock are required by law to vote upon any matter, the
approval of such series shall be deemed to have been obtained only upon
the affirmative vote of the holders of a majority of the shares of the
Series A Stock then outstanding.

(C) Except as set forth herein, or as otherwise provided by
the Articles of Incorporation or by law, holders of the Series A Stock
shall have no voting rights and their consent shall not be required for
the taking of any corporate action.

Section 5. Reacquired Shares. Any shares of Series A Stock purchased or
otherwise acquired by the Corporation in any manner whatsoever or surrendered
for conversion hereunder shall no longer be deemed to be outstanding and all
rights with respect to such shares of stock, including the right, if any, to
receive notices, shall forthwith cease except, in the case of stock surrendered
for conversion hereunder, rights of the holders thereof to receive Common Stock
in exchange therefor.
<PAGE>

All shares of Series A Stock obtained by the Corporation shall be retired and
canceled promptly after the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued shares of Preferred Stock and
may be reissued as part of a new series of Preferred Stock subject to the
conditions and restrictions on issuance set forth herein, in the Articles of
Incorporation, or in any other Certificates of Designations creating a series of
Preferred Stock or any similar stock or as otherwise required by law.

Section 6. Liquidation, Dissolution or Winding Up. The Liquidation Value of
the Series A Stock shall be $100.00 per share. Upon any liquidation, dissolution
or winding up of the Corporation, and after paying and providing for the payment
of all creditors of the Corporation, the holders of shares of the Series A Stock
then outstanding shall be entitled, before any distribution of payment is made
upon the Common Stock and any other equity security of any kind, other than
Preferred Stock, which the Corporation at any time has issued, issues or is
authorized to issue (collectively, "Junior Securities"), to receive a
liquidation preference in an amount in cash equal to the Adjusted Liquidation
Value as of the date of such payment, whether such liquidation is voluntary or
involuntary, and the holders of the Series A Stock shall not be entitled to any
other or further distributions of the assets. If, upon any liquidation,
dissolution or winding up of the affairs of the Corporation, the net assets
available for distribution shall be insufficient to permit payment to the
holders of all outstanding shares of all series of Preferred Stock of the amount
to which they respectively shall be entitled, then the assets of the Corporation
to be distributed to such holders will be distributed ratably among them based
upon the amounts payable on the shares of each such series of Preferred Stock in
the event of voluntary or involuntary liquidation, dissolution or winding up, as
the case may be, in proportion to the full preferential amounts, together with
any and all arrearages to which they are respectively entitled. Upon any such
liquidation, dissolution or winding up of the Corporation, after the holders of
Preferred Stock have been paid in full the amounts to which they are entitled,
the remaining assets of the Corporation may be distributed to holders of Junior
Securities, including Common Stock, of the Corporation. The Corporation will
mail written notice of such liquidation, dissolution or winding up, not less
than twenty (20) nor more than fifty (50) days prior to the payment date stated
therein to each record holder of Series A Stock. Neither the consolidation nor
merger of the Corporation with or into any other corporation or corporations,
nor the sale or transfer by the Corporation of less than all or substantially
all of its assets, nor a reduction in the capital stock of the Corporation, nor
the purchase or redemption by the Corporation of any shares of its Preferred
Stock or Common Stock or any other class of its stock will be deemed to be a
liquidation, dissolution or winding up of the Corporation within the meaning of
this Section 6. "Adjusted Liquidation Value" shall mean the Liquidation Value as
defined in this Section 6 plus all accrued and unpaid dividends through the
applicable date.

Section 7. Ranking. Except as provided in the following sentence, the Series
A Stock shall rank on parity as to dividends and upon liquidation, dissolution
or winding up with all other shares of Preferred Stock issued by the
Corporation. The Corporation shall not issue any shares of Preferred Stock of
any series which are superior to the Series A Stock as to dividends or rights
upon liquidation, dissolution or winding up of the Corporation as long as any
shares of the Series A Stock are issued and outstanding without the prior
written consent of the holders of at least a majority of such shares of Series A
Stock then outstanding voting separately as a class.
<PAGE>

Section 8. Redemption at the Option of the Holder. The shares of Series A
Stock shall not be redeemable at the option of a holder of Series A Stock.

Section 9. Redemption at the Option of the Corporation.

(A) In addition to the redemption right of the Corporation set
forth in Section 3(A), above, the Corporation shall have the right to
redeem all or a portion of the Series A Stock issued and outstanding at
any time and from time to time, at its option, for cash. The redemption
price of the Series A Stock pursuant to this Section 9 shall be an
amount per share equal to the Adjusted Liquidation Value as of the
Redemption Date (the "Redemption Price").

(B) The Corporation may redeem all or a portion of any holder's
shares of Series A Stock by giving such holder not less than twenty
(20) days nor more than thirty (30) days notice thereof prior to the
date on which the Corporation desires such shares to be redeemed, which
date shall be a Business Day (the "Redemption Date"). Such notice shall
be in writing and shall be hand delivered or mailed, postage prepaid,
to the holder (the "Redemption Notice"). If mailed, such notice shall
be deemed to be delivered when deposited in the United States Mail,
postage prepaid, addressed to the holder of shares of Series A Stock at
his address as it appears on the stock transfer records of the
Corporation. The right of the Corporation to redeem shares of Series A
Stock shall remain effective notwithstanding prior receipt by the
Corporation of notice by any holder of Series A Stock of such holder's
intent to convert shares of Series A Stock in accordance with Section 3
above, provided that the Redemption Notice is given on or prior to the
second Business Day following the date of surrender of shares made to
convert said shares to Common Stock. The Redemption Notice shall state
(i) the total number of shares of Series A Stock held by such holder;
(ii) the total number of shares of the holder's Series A Stock that the
Corporation intends to redeem; (iii) the Redemption Date and the
Redemption Price; and (iv) the place at which the holder(s) may obtain
payment of the applicable Redemption Price upon surrender of the share
certificate(s).

(C) If fewer than all shares of the Series A Stock at any time
outstanding shall be called for redemption, such shares shall be
redeemed pro rata, by lot drawn or other manner deemed fair in the sole
discretion of the Board to redeem one or more such shares without
redeeming all such shares of Series A Stock. If a Redemption Notice
shall have been so mailed, at least two (2) Business Days prior to the
Redemption Date, the Corporation shall provide for payment of a sum
sufficient to redeem the applicable number of shares of Series A Stock
subject to redemption either by (i) setting aside the sum required to
be paid as the Redemption Price by the Corporation, separate and apart
from its other funds, in trust for the account of the holder(s) of the
shares of Series A Stock to be redeemed, or (ii) depositing such sum in
a bank or trust company (either located in the state where the
principal executive office of the Corporation is maintained, such bank
or trust company having a combined surplus of at least $20,000,000
according to its latest
<PAGE>

statement of condition, or such other bank or trust company as may be
permitted by the Articles of Incorporation, or by law) as a trust fund,
with irrevocable instructions and authority to the bank or trust
company to give or complete the notice of redemption and to pay, on or
after the Redemption Date, the applicable Redemption Price on surrender
of certificates evidencing the share(s) of Series A Stock so called for
redemption and, in either event, from and after the Redemption Date (a)
the share(s) of Series A Stock shall be deemed to be redeemed; (b) such
setting aside or deposit shall be deemed to constitute full payment for
such share(s); (c) such share(s) so redeemed shall no longer be deemed
to be outstanding; (d) the holder(s) thereof shall cease to be a
stockholder of the Corporation with respect to such share(s); and (e)
such holder(s) shall have no rights with respect thereto except the
right to receive the Redemption Price for the applicable shares. Any
interest on the funds so deposited shall be paid to the Corporation.
Any and all such redemption deposits shall be irrevocable except to the
following extent: any funds so deposited which shall not be required
for the redemption of any shares of Series A Stock because of any prior
sale or purchase by the Corporation other than through the redemption
process, subsequent to the date of deposit but prior to the Redemption
Date, shall be repaid to the Corporation forthwith and any balance of
the funds so deposited and unclaimed by the holder(s) of any shares of
Series A Stock entitled thereto at the expiration of one calendar year
from the Redemption Date shall be repaid to the Corporation upon its
request or demand therefor, and after any such repayment of the
holder(s) of the share(s) so called for redemption shall look only to
the Corporation for payment of the Redemption Price thereof. All shares
of Series A Stock redeemed shall be canceled and retired and no shares
shall be issued in place thereof, but such shares shall be restored to
the status of authorized but unissued shares of Preferred Stock.

(D) Holders whose shares of Series A Stock have been redeemed
hereunder shall surrender the certificate or certificates representing
such shares, duly endorsed or assigned (unless such endorsement or
assignment be waived by the Corporation), to the Corporation by mail,
courier or personal delivery at the Corporation's principal executive
office or other location so designated in the Redemption Notice, and
upon the Redemption Date the Redemption Price shall be payable to the
order of the person whose name appears on such certificate or
certificates as the owner thereof, and each surrendered certificate
shall be canceled and retired. In the event fewer than all of the
shares represented by such certificates are redeemed, a new certificate
shall be issued representing the unredeemed shares.

Section 10. Sinking Fund. The Corporation shall not be required to maintain
any so-called "sinking fund" for the retirement on any basis of the Series A
Stock.

Section 11. Notice. Any notice or request made to the Corporation in
connection with the Series A Stock shall be given in writing, and shall
conclusively be deemed to have been given and received three (3) Business Days
following deposit thereof, in the U.S. mails, certified mail, return receipt
requested, duly stamped and addressed to the Corporation, to the attention of
its General Counsel,
<PAGE>

at its principal executive offices (which shall be deemed to be the address most
recently provided to the Securities and Exchange Commission ("SEC") as its
principal executive offices for so long as the Corporation is required to file
reports with the SEC).

IN WITNESS WHEREOF, this Certificate of Designation is executed on
behalf of the Corporation by its President and its Secretary as of the 30th day
of October, 1998.

/s/ Randall M. Paulson
----------------------------------------
Randall M. Paulson, President

/s/ Thomas A. Holland
----------------------------------------
Thomas A. Holland, Secretary

STATE OF TEXAS ss.
ss.
COUNTY OF DALLAS ss.

This instrument was acknowledged before me on October 30, 1998 by
Randall M. Paulson.

/s/ S.L. Bratton
-----------------------------------
Notary Public, State of Texas

<PAGE>

EXHIBIT 3.5

SECOND AMENDED AND RESTATED
DECLARATION OF TRUST
OF
CONTINENTAL MORTGAGE AND EQUITY TRUST
(FORMERLY CONSOLIDATED CAPITAL SPECIAL TRUST)

This Second Amended and Restated Declaration of Trust is made and
entered into as of May 27, 1987 and will be recorded in Alameda County,
California, as soon as reasonably possible after execution. The original
Declaration of Trust was entered into on August 27, 1980 and was first amended
and restated on November 4, 1980, and further amended on August 13, 1986. This
Second Amended and Restated Declaration of Trust supersedes and overrides all
prior Declarations of Trust of Consolidated Capital Special Trust (the "Trust")
and incorporates changes approved by the Shareholders at the Trust's Annual
Meeting of Shareholders held May 27, 1987.

Fred H. Field, Albert H. Schaaf, Douglas M. Temple, Thomas J.
Fitzmyers, David V. John, and Betty Hood-Gibson do hereby agree to hold in
trust, as Trustees, any and all property, real, personal, or otherwise, tangible
or intangible, of every type and description, which is transferred, conveyed, or
paid to them as such Trustees, and all rents, income, profits, and gains
therefrom for the benefit of the Shareholders hereunder, subject to the terms
and conditions and for the uses and purposes hereinafter set forth.

ARTICLE I

The Trust: Definitions

1.1. Name. The name of the Trust shall be "Consolidated Capital
Special Trust." As far as practicable and except as otherwise provided in this
Declaration, the Trustees shall conduct the Trust's activities, execute all
documents, and sue or be sued in the name of Consolidated Capital Special Trust,
or in their names as Trustees of Consolidated Capital Special Trust. If the
Trustees determine that the use of such name is not practicable, legal, or
convenient, they may use such other designation or may adopt another name under
which the Trust may hold property or conduct its activities.

If Consolidated Capital Equities Corporation, a Colorado corporation,
or any subsidiary, affiliate, or successor of such limited partnership shall
cease, for any reason, to render to the Trust the services of Advisor (as
defined in Section 1.4 hereof) pursuant to the contract referred to in Article
IV hereof and any renewal or extension of such contract, then the Trustees
shall, upon request of Consolidated Capital Equities Corporation, or its
successors, and without any vote or consent of the Shareholders of this Trust
being required, promptly amend this Declaration of Trust to change the name of
the Trust to one which does not include any reference to "Consolidated Capital,"
or "Johnstown/Consolidated" or any approximation thereof.

1
<PAGE>

1.2. Place of Business. The principal office of the Trust shall be
2000 Powell Street in the City of Emeryville, California 94608. However, the
Trustees may, from time to time, change such location and maintain other offices
or places of business.

1.3. Nature of Trust. The Trust is a real estate investment trust.
(also known as a business trust for real estate purposes) organized under the
laws of the state of California. It is intended that the Trust shall carry on
business as a "real estate investment trust" (hereinafter called "REIT") as
described in the REIT Provisions of the Internal Revenue Code. The Trust is not
a general partnership, limited partnership, joint venture, corporation, or joint
stock company or association (but nothing herein shall preclude the Trust from
being taxed as an association under the REIT Provisions of the Internal Revenue
Code) nor shall the Trustees or Shareholders or any of them for any purpose be,
nor be deemed to be, nor treated in any way whatsoever to be, liable or
responsible hereunder as partners or joint venturers. The relationship of the
Shareholders to the Trustees shall be solely that of beneficiaries of the Trust
and their rights shall be limited to those conferred upon them by this
Declaration.

1.4. Definitions. The terms defined in this Section 1.4, whenever
used in this Declaration, shall, unless the context otherwise requires, have the
respective meanings hereinafter specified in this Section 1.4. In this
Declaration, words in the singular number include the plural, and words in the
plural number include the singular.

(a) Advisor. "Advisor" shall mean any Person appointed,
employed, or contracted with by the Trustees under the provisions of
Article IV hereof.

(b) Affiliate. "Affiliate" shall mean, as to any Person any
other Person who owns beneficially, directly or indirectly, 1% or more
of the outstanding capital stock, shares or equity interests of such
Person or of any other Person which controls, is controlled by, or is
under common control with, such Person or is an officer, retired
officer, director, employee, partner, or trustee (excluding independent
trustees not otherwise affiliated with the entity) of such Person or of
any other Person which controls, is controlled by, or is under common
control with such Person.

(c) Annual Meeting of Shareholders. "Annual Meeting of
Shareholders" shall have the meaning set forth in the first sentence of
Section 6.7.

(d) Annual Report. "Annual Report" shall have the meaning
set forth in Section 6.9.

(e) Appraisal. "Appraisal" shall mean the value, as of the
date of the appraisal, of Real Property in its existing state or in a
state to be created as determined by the Trustees, the Advisor, or by a
disinterested Person having no economic interest in the Real Property
and who is a member in good standing of the American Institute of Real
Estate Appraisers (MAI), or who in the sole judgment of the Trustees is
properly qualified to make such determination. The Trustees may in good
faith rely on a previous Appraisal made on behalf of other Persons
provided (i) it meets the aforesaid standards and was made in
connection

2
<PAGE>

with an investment in which the Trust acquires an entire or
participating interest, or (ii) it was prepared not earlier than two
years prior to the acquisition by the Trust of its interest in the Real
Property. In appraising such properties appraisers may take into
consideration each of the specific terms and conditions of a purchase
including any leaseback or other guarantee arrangement contained
therein. Such Appraisal may not necessarily represent the cash value of
the property but may consider the value of the income stream from such
property plus the discounted value of the fee interest and other terms
of the purchase. "Appraisal" when pertaining to Mortgage Loans, shall
mean value as determined by the Advisor.

(f) Appraised Value. "Appraised Value" shall mean the value
stated in the most recent Appraisal of the Real Property owned by the
Trust. Appraisals shall be made at the time of purchasing each Real
Property by an independent member of the American Institute of Real
Estate Appraisers. "Appraised Value," when pertaining to Mortgage Loans
shall mean value as determined by the Advisor.

(g) Book Value. "Book Value" shall mean the value of an
asset or assets of the Trust on the books of the Trust, before
provision for amortization, depreciation or depletion, and before
deducting any indebtedness or other liability in respect thereto,
except that no asset shall be valued at more than its fair value as
determined by the Trustees.

(h) Book Value of Invested Assets. "Book Value of Invested
Assets" shall mean the Book Value of the Trust's total assets (without
deduction of any liabilities) but excluding: (i) goodwill and other
intangible assets; (ii) cash; and (iii) cash-equivalent investments
with terms which mature in one year or less.

(i) Construction Loans. "Construction Loans" shall mean
Mortgage Loans made to finance all or part of the cost of acquiring
land (including leaseholds therein) and the construction of buildings
or other improvements thereon.

(j) Declaration. "Declaration" shall mean this Declaration
of Trust and all amendments, restatements, or modifications thereof.
References in this Declaration to "herein," "hereof," and "hereunder"
shall be deemed to refer to this Declaration and shall not be limited
to the particular text article or section in which such words appear.

(k) Development Loans. "Development Loans" shall mean
Mortgage Loans made to finance all or part of the cost of the
acquisition of land (including leaseholds therein) and the development
of such land into finished sites, including the installation of
utilities, drainage, sewage, road systems, and other improvements prior
to commencement of construction.

(l) First Mortgage. "First Mortgage" shall mean a Mortgage
which takes priority or precedence over all other charges or liens upon
the same Real Property, other than a lessee's interest therein, and
which must be satisfied before such other charges are entitled to
participate in the proceeds of any sale. Such Mortgage may be upon a
lessee's interest in Real Property. Such priority shall not be deemed
as abrogated by liens for taxes,

3
<PAGE>

assessments which are not delinquent or remain payable without penalty,
contracts (other than contracts for repayment of borrowed monies), or
leases, mechanic's and materialman's liens for work performed and
materials furnished which are not in default or are in good faith being
contested, and other claims normally deemed in the same local
jurisdiction not to abrogate the priority of a First Mortgage.

(m) First Mortgage Loans. "First Mortgage Loans" shall
mean Mortgage Loans secured or collateralized by First Mortgages.

(n) Interim Loans. "Interim Loans" shall mean any loan for
the purpose of funding the development and/or construction of real
estate.

(o) Junior Mortgage. "Junior Mortgage" shall mean a
Mortgage which (i) has the same priority or precedence over charges or
encumbrances upon Real Property as that required for a First Mortgage
except that it is subject to the priority of one or more other
Mortgages, and (ii) must be satisfied before such other charges or
liens (other than prior Mortgages) are entitled to participate in the
proceeds of any sale.

(p) Junior Mortgage Loans. "Junior Mortgage Loans" shall
mean Mortgage Loans secured or collateralized by Junior Mortgages.

(q) Mortgage Loans. "Mortgage Loans" shall mean notes,
debentures, bonds, and other evidences of indebtedness or obligations
which are negotiable or non-negotiable and which are secured or
collateralized by Mortgages.

(r) Mortgages. "Mortgages" shall mean Mortgages, deeds of
trust, or other security deeds on Real Property or rights or interests
in Real Property.

(s) Net Asset Value. "Net Asset Value" shall mean the Book
Value of all the assets of the Trust minus all the liabilities of the
Trust.

(t) Net Income. "Net Income" for any period shall mean the
Net Income of the Trust for such period computed on the basis of its
results of operations for such period, after deduction of all expenses
other than the Subordinated Trust Management Fee payable to the Advisor
and other than extraordinary items, gains and losses from the
disposition of assets of the Trust and amortization, depreciation or
depletion of the assets of the Trust.

(u) Operating Expenses. "Operating Expenses" shall mean the
aggregate annual expenses of every character regarded as operating
expenses in accordance with generally accepted accounting principles,
as determined by independent accountants selected by the Trustees,
including the Subordinated Trust Management Fee payable to the Advisor
and the fees and expenses paid to the Trustees who are not employees or
Affiliates of the Advisor, excluding, however, the following: the cost
of money borrowed by the Trust; taxes on income and taxes and
assessments on Real Property and all other taxes applicable to the
Trust; legal, auditing, accounting, underwriting, brokerage, listing,
registration and other

4
<PAGE>

fees, and printing, engraving and other expenses and taxes incurred in
connection with the issuance, distribution, transfer, registration, and
stock exchange listing of the Trust's securities; fees and expenses
paid to independent contractors, mortgage servicers, consultants,
managers, and other agents retained by or on behalf of the Trust;
expenses directly connected with the origination, purchase, ownership
and disposition of Mortgage Loans and with the acquisition, disposition
and ownership of real estate interests or other property (including the
costs of foreclosure, insurance premiums, legal services, brokerage and
sales commissions, maintenance, repair and improvement of property);
other than expenses with respect thereto (with the exception of legal
services) of employees of the Advisor; expenses of maintaining and
managing real estate equity interests and processing and servicing
mortgage and other loans; expenses connected with payments of dividends
or interest or distributions in cash or any other form made or caused
to be made by the Trustees to holders of securities of the Trust; all
expenses connected with communications to holders of securities of the
Trust and the other bookkeeping and clerical work necessary in
maintaining relations with holders of securities, including the cost of
printing and mailing certificates for securities and proxy solicitation
materials and reports to such holders; transfer agent's, registrar's,
and indenture trustee's fees and charges; and exclusive of reserves for
depletion, depreciation, and amortization and losses and provisions for
losses.

(v) Person. "Person" shall mean and include individuals,
corporations, limited partnerships, general partnerships, joint stock
companies or associations, joint ventures, associations, companies,
trusts, banks, trust companies land trusts, business trusts or other
entities and governments and agencies and political subdivisions
thereof.

(w) Real Property. "Real Property it shall mean and include
land, rights in land, leasehold interests (including but not limited to
interests of a lessor or lessee therein), and any buildings structures,
improvements, fixtures, and equipment located on or used in connection
with land, leasehold interests and rights in land or interests therein,
but shall not include Mortgages, Mortgage Loans, or interests therein.

(x) REIT Provisions of the Internal Revenue Code. "REIT
Provisions of the Internal Revenue Code" shall mean Part II, Subchapter
M of Chapter 1, of the Internal Revenue Code of 1954, as now enacted or
hereafter amended, or successor statutes, and regulations and rulings
promulgated thereunder.

(y) Securities. "Securities" shall mean any stock, shares,
voting trust certificates, bonds, debentures, notes, or other evidences
of indebtedness, secured or unsecured, convertible, subordinated or
otherwise, or in general any instruments commonly known as
"securities," or any certificates of interest, shares, or
participations in temporary or interim certificates for receipts for,
guarantees of, or warrants, options, or rights to subscribe to,
purchase, or acquire any of the foregoing.

(z) Shares. "Shares" shall mean the Shares of beneficial
interest of the Trust as described in Section 6.1.

5
<PAGE>

(aa) Shareholders. "Shareholders" shall mean, as of any
particular time, all holders of record of outstanding Shares at such
time.

(bb) Total Assets of the Trust Estate. "Total Assets of the
Trust Estate" shall mean the value of all the assets of the Trust
Estate as shown on the books of the Trust.

(cc) Trust Estate. "Trust Estate" shall mean, as of any
particular time, any and all property, real, personal, or otherwise,
tangible or intangible, which is owned or held by the Trust or the
Trustees, including, but not limited to, property which is transferred,
conveyed, or paid to the Trust or Trustees, and all rents, income,
profits, and gains therefrom.

(dd) Trustees. "Trustees" shall mean, as of any particular
time, Trustees holding office under this Declaration at such time,
whether they be the Trustees named herein or additional or successor
Trustees , and shall not include the officers, representatives, or
agents of the Trust, or the Shareholders, but nothing herein shall be
deemed to preclude the Trustees from also serving as officers,
representatives, or agents of the Trust, or from owning Shares.

(ee) Trustees' Regulations. "Trustees' Regulations" shall
have the meaning set forth in Section 3.3.

(ff) Wrap-Around Mortgage Loan. "Wrap-Around Mortgage Loan"
shall mean a loan in an amount equal to the balance due under an
existing Mortgage Loan plus an additional amount advanced by the lender
holding the Wrap-Around Mortgage Loan, where the existing Mortgage Loan
will not be retired, and such Wrap-Around Mortgage Loan shall be deemed
to include hypothecation loans, the payment of which is secured by
assignment to the Trust of other existing notes and deeds of trust or
mortgages which the borrower holds, and which assigned loans, in the
event of default of the hypothecation loan made by the Trust, may be
collected directly by the Trust.

ARTICLE II

Trustees

2.1. Number, Term of Office, and Qualifications of Trustees. There
shall be no less than five (5) nor more than fifteen (15) Trustees. The current
Trustees are the six signatories hereto. Within the limits set forth in this
Section 2.1, the number of Trustees may be increased or decreased from time to
time by the Trustees or by the Shareholders. Subject to the provisions of
Section 2.3 each Trustee shall hold office until the expiration of his term and
until the election and qualification of his successor. The terms of the Trustees
executing this Declaration, or of any successor or successors to them, duly
elected hereunder prior to the Annual Meeting of the Shareholders to be held
following the close of the Trust's fiscal year in 1982, shall expire at such
Annual Meeting of the Shareholders. Thereafter, the term of each Trustee shall
expire at the Annual Meeting of the Shareholders following the election of such
Trustee. Trustees may be re-elected.

6
<PAGE>

A Trustee shall be an individual at least twenty-one (21) years of age
who is not under legal disability. A Trustee shall qualify as such when he has
either signed this Declaration or agreed in writing to be bound by it. Unless
otherwise required by law or by action of the Trustees, no Trustee shall be
required to give bond, surety, or security in any jurisdiction for the
performance of any duties or obligations hereunder. The Trustees, in their
capacity as Trustees, shall not be required to devote their entire time to the
business and affairs of the Trust. A majority of the Trustees shall at all times
be Persons who are not Affiliates of Consolidated Capital Equities Corporation
or any of its Affiliates, provided, however, that upon a failure to comply with
this requirement because of the death, resignation, or removal of a Trustee who
is not such an Affiliate, such requirement shall not be applicable for a period
of sixty (60) days.

2.2. Compensation and Other Remuneration. The Trustees shall be
entitled to receive such reasonable compensation for their services as Trustees
as they may determine from time to time; provided, however, that Trustees and
officers of the Trust who are affiliated with the Advisory Company or any of its
Affiliates shall not receive compensation from the Trust for their services as
Trustees or officers of the Trust. The Trustees either directly or indirectly
shall also be entitled to receive remuneration for services rendered to the
Trust in any other capacity. Such services may include, without limitation,
services as an officer of the Trust, legal, accounting, or other professional
services, or services as a broker, transfer agent, or underwriter, whether
performed by a Trustee or by any Person affiliated with a Trustee.

2.3. Resignation, Removal, and Death of Trustees. The term of office
of a Trustee shall terminate and vacancy shall occur in the event of the death,
resignation, bankruptcy, adjudicated incompetence, or other incapacity to
exercise the duties of the office, or removal of a Trustee. A Trustee may resign
at any time by his giving written notice in recordable form to the remaining
Trustees at the principal office of the Trust. Such resignation shall take
effect on the date such notice is given, or at any later time specified in the
notice, without need for prior or subsequent accounting. A Trustee may be
removed at any time, with or without cause, by vote or consent of holders of a
majority of the outstanding Shares entitled to vote thereon, or by a majority of
the remaining Trustees. A Trustee judged incompetent or bankrupt, or for whom a
guardian or conservator has been appointed, shall be deemed to have resigned as
of the date of such adjudication or appointment. Upon the resignation or removal
of any Trustee, or upon his otherwise ceasing to be a Trustee, he shall execute
and deliver such documents as the remaining Trustees shall require for the
conveyance of any Trust property held in his name and shall account to the
remaining Trustee or Trustees, as they require, for all property which he holds
as Trustee and shall thereupon be discharged as Trustee. Upon the incapacity or
death of any Trustee, his legal representative shall perform the acts set forth
in the preceding sentence, and the discharge mentioned therein shall run to such
legal representative and to the incapacitated Trustee or the estate of the
deceased Trustee, as the case may be.

2.4. Vacancies. If any or all of the Trustees cease to be Trustees
hereunder, whether by reason of resignation, removal, incapacity, death, or
otherwise, such event shall not terminate the Trust or affect its continuity.
Until vacancies are filled, the remaining Trustee or Trustees (even though less
than five (5)) may exercise the powers of the Trustees hereunder. Vacancies
(including vacancies created by increases in number) may be filled by the
remaining Trustee or Trustees, or by the vote or consent of holders of a
majority of the outstanding Shares entitled to vote thereon. If at

7
<PAGE>

any time there shall be no Trustees in office, successor Trustees shall be
elected by the Shareholders as provided in Section 6.7.

2.5. Successor and Additional Trustees. The right, title, and
interest of the Trustees in and to the Trust Estate shall also vest in successor
and additional Trustees upon their qualification, and they shall thereupon have
all the rights and obligations of Trustees hereunder. Such right, title, and
interest shall vest in the Trustees, whether or not conveyance documents have
been executed and delivered pursuant to Section 2.3 or otherwise.

2.6. Actions by Trustees. A quorum for all meetings of the Trustees
shall be a majority of the Trustees. Common, interested, or affiliated Trustees
may be counted in determining the presence of: a quorum at a meeting of the
Trustees. Unless specifically provided otherwise in this Declaration, the
Trustees may act by a vote or resolution at a meeting at which a quorum is
present or without a meeting by a written vote, resolution, or other writing
consenting to said action, signed by a majority of the Trustees. Every act or
decision done or made by a majority of the Trustees present at a meeting duly
held at which a quorum is present is the act of the Trustees. Any agreement,
deed, Mortgage, lease, or other instrument or writing executed by one or more of
the Trustees, or by any authorized person, shall be valid and binding upon the
Trustees and upon the Trust when ratified by action of the Trustees.

2.7. Executive Committee. The Trustees may appoint from among their
own number an executive committee of three or more Persons to whom they may
delegate from time to time such of the powers herein given to the Trustees as
they may deem advisable. A majority of the Executive Committee shall at all
times be Trustees who are not Affiliates of Consolidated Capital Equities
Corporation or any of its Affiliates, provided, however, that upon a failure to
comply with this requirement because of the death, resignation, or removal of a
Trustee who is not such an Affiliate, such requirement shall not be applicable
for a period of sixty (60) days.

ARTICLE III

Trustees' Powers

3.1. Power and Authority of Trustees. The Trustees, subject only to
the specific limitations contained in this Declaration, shall have, without
further or other authorization and free from any power or control on the part of
the Shareholders, full, absolute, and exclusive power, control, and authority
over the Trust Estate and over the business and affairs of the Trust to the same
extent as if the Trustees were the sole owners thereof in their own right, and
may do all such acts and things as in their sole judgment and discretion are
necessary for or incidental to or desirable for the carrying out of any of the
purposes of the Trust or the conducting of the business of the Trust. Any
determination made in good faith by the Trustees of the purposes of the Trust or
the existence of any power or authority hereunder shall be conclusive. In
construing the provisions of this Declaration, a presumption shall favor of the
grant of powers and authority to the Trustees. The enumeration of any specific
power or authority herein shall not be construed as limiting the general powers
or authority or any other specified power or authority conferred herein upon the
Trustees.

8
<PAGE>

3.2. Specific Powers and Authorities. Subject only to the express
limitations contained in this Declaration and in addition to any powers and
authorities conferred by this Declaration or which the Trustees may have by
virtue of any present or future statute or rule or law, the Trustees, without
any action or consent by the Shareholders, shall have and may exercise at any
time and from time to time the following powers and authorities which may or may
not be exercised by them in their sole judgment and discretion and in such
manner and upon such terms and conditions as they may from time to time deem
proper:

(a) To retain, invest, and reinvest the capital or other
funds of the Trust in mortgage and/or equity interests in real or
personal property of any kind, all without regard to whether any such
property is authorized by law for the investment of Trust funds or
whether any investments may mature before the possible termination of
the Trust, and to possess and exercise all the rights, powers, and
privileges appertaining to the ownership of the Trust Estate and to
increase the capital of the Trust at any time by the issuance of
additional Shares for such consideration as they deem appropriate.

(b) For such consideration as they deem proper, to invest
in, purchase, or otherwise acquire for cash or other property or
through the issuance of Shares or through the issuance of notes,
debentures, bonds, or other obligations of the Trust and hold for
investment real, personal or mixed, tangible or intangible, property of
any kind wherever located in the world, including without limitation:
(i) the entire or any participating interest in rents, lease payments,
or other income from, or the entire or any participating interest in
the profits from, or the entire or any participating interest in the
equity or ownership of, Real Property; (ii) the entire or any
participating interest in notes, bonds, or other obligations which are
secured by Mortgages; (iii) in connection with any such investment,
purchase or acquisition, a share of rents, lease payments, or other
gross income from or a share of the profits from or a share in the
equity or ownership of Real Property, either directly or through joint
venture, general or limited partnership, or other lawful combinations
or associations; (iv) loans secured by the pledge or transfer of
Mortgages; and (v) Securities of every nature, whether or not secured
by Mortgage Loans. The Trustees shall also have the power to develop,
operate, pool, unitize, grant production payments out of or lease or
otherwise dispose of mineral, oil, and gas properties and rights.

(c) To sell, rent, lease, hire, exchange, release,
partition, assign, mortgage, pledge, hypothecate, grant security
interests in, encumber, negotiate, convey, transfer, or otherwise
dispose of any and all of the Trust Estate by deeds, trust deeds,
assignments bills of sale, transfers, leases, mortgages, financing
statements, security agreements, and other instruments for any of such
purposes executed and delivered for and on behalf of the Trust or the
Trustees by one or more of the Trustees or by a duly authorized
officer, employee, agent, or any nominee of the Trust.

(d) To issue Shares, bonds, debentures, notes, or other
evidences of indebtedness which may be secured or unsecured and may be
subordinated to any indebtedness of the Trust and may be convertible
into Shares and which include options, warrants, and rights to
subscribe to, purchase, or acquire any of the foregoing, all without
vote of or other action by

9
<PAGE>

the Shareholders to such Persons for such cash, property or other
consideration (including Securities issues or created by or interests
in any Person) at such time or times and on such terms as the Trustees
in their sole discretion and in good faith may deem advisable and to
list any of the foregoing Securities issued by the Trust on any
securities exchange and to purchase or otherwise acquire, hold, cancel,
reissue, sell and transfer any of such Securities.

(e) To enter into leases, contracts, obligations, and other
agreements for a term extending beyond the term of office of the
Trustees and beyond the possible termination of the Trust or for a
lesser term.

(f) To borrow money and give negotiable or non-negotiable
instruments therefor; to guarantee, indemnify or act as surety with
respect to payment or performance of obligations of third parties; to
enter into other obligations on behalf of the Trust; and to assign,
convey, transfer, mortgage, subordinate, pledge, grant security
interests in, encumber or hypothecate the Trust Estate to secure any of
the foregoing, provided that upon and after giving effect to any
proposed borrowing the amount of outstanding, secured and unsecured
indebtedness of the Trust for money borrowed from or guaranteed to
others, including Mortgages on acquired Real Property, would not exceed
three hundred percent (300%) of the Net Asset Value of the Trust. Any
excess in borrowing over such 300% level shall be approved by a
majority of the Trustees who are not Affiliates of the Advisor or any
of its Affiliates, and disclosed to the Shareholders in the next
quarterly report of the Trust, along with justification for such
excess; provided that such authority can only be exercised to permit
the issuance of collateralized mortgage obligations ("CMOs"), regular
or residual interests in real estate mortgage investment conduits
("REMICs"), or any other mortgage-backed security.

(g) To lend money, whether secured or unsecured.

(h) To create reserve funds for any purpose.

(i) To incur and pay out of the Trust Estate any charges or
expenses, and disburse any funds of the Trust, which charges, expenses
or disbursements are, in the opinion of the Trustees, necessary for or
incidental to or desirable for the carrying out of any of the purposes
of the Trust or the conducting of the business of the Trust, including,
without limitation, taxes and other governmental levies, charges and
assessments of whatever kind or nature, imposed upon or against the
Trustees in connection with the Trust or the Trust Estate or upon or,
against the Trust Estate or any part thereof, and for any of the
purposes herein.

(j) To deposit funds or Securities held by the Trust in
banks, trust companies, savings and loan associations and other
depositories, whether or not such deposits will draw interest, the same
to be subject to withdrawal on such terms and in such manner and by
such Person or Persons (including any one or more Trustees, officers,
agents or representatives) as the Trustees may determine.

10
<PAGE>

(k) To possess and exercise all the rights, powers and
privileges appertaining to the ownership of all or any interests in,
Mortgages or Securities issued or created by, any Person, forming part
of the Trust Estate, to the same extent that an individual might, and,
without limiting the generality of the foregoing, to vote or give any
consent, request or notice, or waive any notice, either in person or by
proxy or power of attorney, with or without power of substitution, to
one or more Persons, which proxies and powers of attorney may be for
meetings or actions generally, or for any particular meeting or action,
and may include the exercise of discretionary powers.

(l) To enter into joint ventures, general or limited
partnerships, and any other lawful combinations or associations.

(m) To elect, appoint engage or employ such officers for
the Trust as the Trustees may determine, who may be removed or
discharged at the discretion of the Trustees, such officers to have
such powers and duties, and to serve such terms and at such
compensation as may be prescribed by the Trustees or by the Trustees'
Regulations, to engage or employ any Persons (including, subject to the
provisions of Sections 7.5 and 7.6, any Trustee or officer and any
Person with which any Trustee or officer is directly or indirectly
connected) as agents, representatives, employees, or independent
contractors (including, without limitation, real estate advisors,
investment advisors, transfer agents, registrars, underwriters,
accountants, attorneys at law, real estate agents, managers,
appraisers, brokers, architects, engineers, construction managers,
general contractors or otherwise) in one or more capacities, and to pay
compensation from the Trust for services in as many capacities as such
Person may be so engaged or employed and, except as prohibited by law,
to delegate any of the powers and duties of the Trustees to any one or
more Trustees, agents, representatives, officers, employees,
independent contractors or other Persons.

(n) To determine whether monies, Securities or other assets
received by the Trust shall be charged or credited to income or capital
or allocated between income and capital, such determination including
the power to amortize or fail to amortize any part or all of any
premium or discount, to treat any part or all of the profit resulting
from the maturity or sale of any asset, whether purchased at a premium
or at a discount, as income or capital or to apportion the same between
income and capital; to apportion the sale price of any asset between
income and capital, and to determine in what manner any expenses or
disbursements are to be borne as between income and capital, whether or
not in the absence of the power and authority conferred by this
subsection such monies Securities or other assets would be regarded as
income or as capital or such expense or disbursement would be charged
to income or to capital; to treat any dividend or other distribution on
any investment as income or capital or apportion the same between
income and capital; to provide or fail to provide reserves for
depreciation, amortization or obsolescence in respect of all or any
part of the Trust Estate subject to depreciation, amortization or
obsolescence in such amounts and by such methods as they shall
determine; to allocate to the share of beneficial interest account less
than all of the consideration received for Shares and to allocate the
balance thereof to paid-in capital; and to determine the method or form
in which the accounts and records of the Trust shall be kept and to
change from time to time such method or form.

11
<PAGE>

(o) To determine from time to time the value of all or any
part of the Trust Estate and of any services, Securities, assets, or
other consideration to be furnished to or acquired by the Trust, and
from time to time to revalue all or any part of the Trust Estate in
accordance with such appraisals or other information as are, in the
Trustees' sole judgment, necessary and/or satisfactory.

(p) To collect, sue for, and receive all sums of money or
other assets coming due to the Trust, and to engage in, intervene in,
prosecute, join, defend, compound, compromise, abandon or adjust, by
arbitration or otherwise, any actions, suits, proceedings, disputes,
claims, controversies, demands or other litigation relating to the
Trust, the Trust Estate or the Trust's affairs, to enter into
agreements therefor, whether or not any suit is commenced or claim
accrued or asserted and, in advance of any controversy, to enter into
agreements regarding arbitration, adjudication or settlement thereof.

(q) To renew, modify, release, compromise, extend,
consolidate, or cancel, in whole or in part, any obligation to or of
the Trust.

(r) To purchase and pay for out of the Trust Estate
insurance contracts and policies insuring the Trust Estate against any
and all risks and insuring the Trust and/or any or all of the Trustees,
the Shareholders, officers, employees, agents, investment advisors or
independent contractors of the Trust against any and all claims and
liabilities of every nature asserted by any Person arising by reason of
any action alleged to have been taken or omitted by the Trust or by any
such Person as Trustee, Shareholder, officer, employee, agent,
investment advisor or independent contractor, whether or not the Trust
would have the power to indemnify such Person against such liability.

(s) To cause legal title to any of the Trust Estate to be
held by and/or in the name of the Trustees, or except as prohibited by
law, by and/or in the name of the Trust or one or more of the Trustees
or any other Person, on such terms, in such manner, with such powers in
such Person as the Trustees may determine, and with or without
disclosure that the Trust or Trustees are interested therein.

(t) To adopt a fiscal year for the Trust, and from time to
time to change such fiscal year without the approval of the
Shareholders.

(u) To adopt and use a seal (but the use of a seal shall
not be required for the execution of instruments or obligations of the
Trust).

(v) To make, perform, and carry out, or cancel and rescind,
contracts of every kind for any lawful purpose without limit as to
amount, with any Person, firm, trust, association, corporation,
municipality, county, parish, state, territory, government or other
municipal or governmental subdivision. These contracts shall be for
such duration and upon such terms as the Trustees in their sole
discretion shall determine.

12
<PAGE>

(w) To do all other such acts and things as are incidental
to the foregoing, and to exercise all powers which are necessary or
useful to carry on the business of the Trust; to promote any of the
purposes for which the Trust is formed, and to carry out the provisions
of this Declaration.

3.3. Trustees' Regulations. The Trustees may make, adopt, amend or
repeal regulations (the "Trustees' Regulations") containing provisions relating
to the business of the Trust, the conduct of its affairs, its rights or powers
and the rights or powers of its Shareholders, Trustees or officers not
inconsistent with law or with this Declaration.

3.4. Additional Powers. The Trustees shall additionally have and
exercise all the powers conferred by the laws of California upon business trusts
or real estate investment trusts formed under such laws, insofar as such laws
are not in conflict with the provisions of this Declaration.

3.5. Incorporation. Upon a vote of two-thirds (2/3) of the Trustees,
and with the approval of the holders of a majority of the outstanding Shares,
the Trustees shall have the power to cause to be organized or to assist in
organizing a corporation or corporations under the laws of any jurisdiction or
any other trust, partnership, association, or other organization to take over
the Trust Estate or any part or parts thereof or to carry on any business in
which the Trust shall directly or indirectly have any interest, and to sell,
convey and transfer the Trust Estate or any part or parts thereof to any such
corporation, trust, partnership, association, or organization in exchange for
the Shares or Securities thereof or otherwise, and to lend money to, subscribe
for the Shares or Securities of, and enter into any contracts with any such
corporation, trust, partnership, association, or organization, or any
corporation, trust partnership, association, or organization in which the Trust
holds or is about to acquire Shares or any other interest. The Trustees may also
cause a merger or consolidation between the Trust or any successor thereto and
any such corporation if and to the extent permitted by law, provided that under
the law then in effect, the federal income tax benefits available to qualified
real estate investment trusts and their shareholders, or substantially similar
benefits, are also available to such corporation, trust, partnership,
association, or organization and its stockholders or members, and provided that
the resulting investment would be substantially equal in quality and
substantially the same in type as an investment in the Shares.

ARTICLE IV

Advisor: Limitation on Operating Expenses

4.1. Employment of Advisor. The Trustees are responsible for the
general policies of the Trust and for such general supervision of the business
of the Trust conducted by all officers, agents, employees, advisors, managers or
independent contractors of the Trust as may be necessary to ensure that such
business conforms to the provisions of this Declaration. However, the Trustees
shall not be required personally to conduct all the business of the Trust, and
consistent with their ultimate responsibility as stated above the Trustees shall
have the power to appoint, employ or contract with any Person (including one or
more of themselves or any corporation, partnership, or trust in which one or
more of them may be directors, officers, stockholders, partners or trustees) as
the Trustees

13
<PAGE>

may deem necessary or proper for the transaction of the business of the Trust.
The Trustees may therefor employ or contract with such Person (herein referred
to as the "Advisor"), and the Trustees may grant or delegate such authority to
the Advisor as the Trustees may in their sole discretion deem necessary or
desirable without regard to whether such authority is normally granted or
delegated by Trustees.

The Trustees (subject to the provisions of Sections 4.2 and
4.4) shall have the power to determine the terms and compensation of the Advisor
or any other Person whom they may employ or with whom they may contract
provided, however, that any determination to employ or contract with any Trustee
or any Person of which a Trustee is an Affiliate, shall be valid only if made,
approved or ratified by a Majority of the Trustees who are not Affiliates of
such Person. The Trustees may exercise broad discretion in allowing the Advisor
to administer and regulate the operations of the Trust, to act as agent for the
Trust, to execute documents on behalf of the Trustees, and to make executive
decisions which conform to general policies and general principles previously
established by the Trustees.

4.2. Term. The Trustees shall not enter into any contract with the
Advisor unless such contract has an initial term of no more than two (2) years
and provides for annual renewal or extension thereafter, subject to approval by
the Shareholders of the Trust. However, the first such term shall extend from
the date of its execution to the date of the first annual meeting of the
Shareholders. The Trustees shall not enter into such a contract with any Person
of which a Trustee is an Affiliate unless such contract provides for renewal or
extension thereof by the affirmative vote of a majority of the Trustees who are
not Affiliates of such Person. The contract with the Advisor may be terminated
without penalty by the Advisor upon one hundred twenty (120) days' written
notice or by action of holders of a majority of the outstanding Shares of the
Trust without penalty, or by the Trust without penalty by action of a majority
of the Trustees, including a majority of the Trustees not affiliated with the
Advisor or any of its Affiliates, upon sixty (60) days, written notice, in a
manner to be set forth in the contract with the Advisor.

4.3. Other Activities of Advisor. The Advisor shall not be required
to administer the investment activities of the Trust as its sole and exclusive
function and may have other business interests and may engage in other
activities similar or in addition to those relating to the Trust, including the
rendering of services and advice to other Persons (including other real estate
investment trusts) and the management of other investments (including
investments of the Advisor and its Affiliates). The Trustees may request the
Advisor to engage in other activities which complement the Trust's investments
and to provide services requested by the borrowers or prospective borrowers from
the Trust, and the Advisor may receive compensation or commissions therefor from
the Trust or other Persons.

The Advisor shall be required to use its best efforts to
present to the Trust a continuing and suitable investment program which is
consistent with the investment policies and objectives, of the Trust, but
neither the Advisor nor any Affiliate of the Advisor (subject to any applicable
provisions of Section 7.6) shall be obligated to present any particular
investment opportunity to the Trust even if such opportunity is of a character
which, if presented to the Trust,

14
<PAGE>

could be taken by the Trust, and, subject to the foregoing, shall be protected
in taking for its own account or recommending to others any such particular
investment opportunity.

Upon request of any Trustee, the Advisor and any Person who
controls, is controlled by, or is under common control with the Advisor, shall
from time to time promptly furnish the Trustees with information on a
confidential basis as to any investments within the Trust's investment policies
made by the Advisor or such other Person for its own account.

4.4. Limitation on Operating Expenses. The Operating Expenses of the
Trust for any fiscal year shall not exceed the lesser of (a) one and one-half
percent (1 1/2%) of the average of the Book Values of Invested Assets of the
Trust at the end of each calendar month of such fiscal year, or (b) the greater
of one and one-half percent (1 1/2%) of the average of the Net Asset Value of
the Trust at the end of each calendar month of such fiscal year or twenty-five
percent (25%) of the Trust's Net Income, and each contract made with the Advisor
shall specifically provide for a refund to the Trust of the amount, if any, by
which the Operating Expenses so exceed the applicable amount provided, however,
that the Advisor shall not be required to refund to the Trust, with respect to
any fiscal year, any amount which exceeds the aggregate of the Subordinated
Trust Management Fee paid to the Advisor under such contract with respect to
such fiscal year.

ARTICLE V

Investment Policy

5.1. General Statement of Policy. The Trustees intend initially, and
to the extent funds are not fully invested in Construction Loans, Development
Loans, Interim Loans, Mortgages and Real Property as described below, to invest
the Trust Estate in investments such as: (a short-term government Securities,
(b) Securities of government agencies, (c) bankers' acceptances, (d)
certificates of deposit, (e) deposits in commercial banks, (f) participations in
pools of mortgages or bonds and notes (such as Federal Home Loan Mortgage
Corporation participation sale certificates ("Freddie Mac PCS"), Government
National Mortgage Association modified pass-through certificates ("Ginnie Mae
Pass-Throughs") and Federal National Mortgage Association bonds and notes
("Fannie Maes"), collateralized mortgage obligations ("CMOs"), regular or
residual interests in real estate mortgage investment conduits ("REMICs"), and
any other mortgage-backed security), and/or (g) obligations of municipal, state
and federal governments and government agencies. Otherwise, the Trustees intend
to invest the major portion of the Trust Estate to fund Construction Loans,
Development Loans and Interim Loans, and to develop Real Property and expenses
reasonably related to the development of Real Property. The Trustees may also
invest in ownership or other interests in Mortgages and in Real Property or in
Persons involved in owning, operating, leasing, developing, financing or dealing
in Mortgages or Real Property (which investments shall ordinarily be made in
connection with properties having income-producing capabilities). The Trustees
may make commitments to make investments consistent with the foregoing policies.
The Trustees may also participate in the investments with other investors,
including Investors having investment policies similar to those of the Trust, on
the same or different terms, and the Advisor may act as advisor to such other
investors, including investors who have the same investment policies.

15
<PAGE>

The Trustees may retain, as permanent reserves, amounts, if
any, which they deem reasonable in cash and in the types of investments
described above at items (a)-(g) and at Section 5.2 (a)-(c).

Subject to the investment restrictions in Section 5.3, the
Trustees may alter any or all of the above-described investment policies if they
should determine such change to be in the best interest of the Trust. Subject to
the preceding terms, the Trustees shall endeavor to invest the Trust's assets in
accordance with the investment policies set forth in this Article V, but the
failure so to invest its assets shall not affect the validity of any investment
made or action taken by the Trustees.

The general purpose of the Trust is to seek income which
qualifies under the REIT Provisions of the Internal Revenue Code. The Trustees
intend to make investments in such a manner as to comply with the requirements
of the REIT Provisions of the Internal Revenue Code with respect to the
composition of the Trust's investments and the derivation of its income,
provided, however, that no Trustee, officer, employee, agent, investment advisor
or independent contractor of the Trust shall be liable for any act or omission
resulting in the loss of tax benefits under the Internal Revenue Code, except
for that arising from his own bad faith, willful misconduct, gross negligence or
reckless disregard of his duties, and provided further that for a period of time
as the portfolio of equity investments and other investments is developed, the
Trust s assets may be invested in investments with income which does not qualify
under the REIT Provisions of the Internal Revenue Code.

5.2. Uninvested Assets. To the extent that the Trust has assets not
otherwise invested in accordance with Section 5.1, the Trustees may invest such
assets in:

(a) obligations of, or guaranteed by, the United States
Government or any agencies or political subdivisions thereof;

(b) obligations of, or guaranteed by, any state, territory
or possession of the United States of America or any agencies or
political subdivisions thereof; and

(c) evidences of deposits in, or obligations of, banking
institutions, state and federal savings and loan associations and
savings institutions which are members of the Federal Deposit Insurance
Corporation or of the Federal Home Loan Bank Systems.

5.3. Restrictions. The Trustees shall not:

(a) invest in any foreign currency, bullion or commodities;

(b) invest in contracts of sale for real estate, except in
conjunction with acquisition or sale of Real Property or when held as
security for Mortgages made or acquired by the Trust;

16
<PAGE>

(d) issue warrants, options or rights to buy Shares, except as
part of a ratable issue to Shareholders or as part of a public offering
or as part of a financial arrangement with parties other than the
Advisor or directors, Trustees, officers or employees of the Trust or
the Advisor or as part of a ratable distribution to Shareholders;

(e) invest any of the total Trust assets in unimproved,
non-income-producing Real Property, or in participations in unimproved,
non-income-producing Real Property, or Mortgage Loans on unimproved,
non-income-producing Real Property, excluding Real Property which is
being developed or will be developed within a reasonable period of
time, and excluding a lien interest when given by a borrower as
additional security on a permitted type of mortgage loan;

(f) issue equity Securities of more than one class (other than
convertible obligations, warrants, rights and options, and regular or
residual interests in REMICs);

(g) invest in any equity Security, including the Shares of
other REITs for a period in excess of 18 months, except for shares of a
qualified REIT subsidiary, as defined in Section 856(i) of the Internal
Revenue Code, and regular or residual interests in REMICs;

(h) make any loan to the Sponsor of the Trust, Consolidated
Capital Equities Corporation, the Advisor or any of their Affiliates;

(i) engage in trading as compared with investment activities,
or engage in the business of underwriting or agency distribution of
Securities issued by others, but this prohibition shall not prevent the
Trust from selling participations or interests in Mortgage Loans or
Real Property or from selling or pledging a pool of notes receivable
from property sales or selling interests in REMICs or CMOs;

(j) invest more than 10% of total Trust assets in Junior
Mortgage Loans, excluding Wrap-Around Mortgage Loans;

(k) acquire Securities in any company holding investments or
engaging in activities prohibited by this Section;

(l) issue "redeemable securities," as defined in Section
2(a)(32) of the Investment Company Act of 1940, "face-amount
certificates of the installment type" as defined in Section 2(a)15
thereof and "periodic payment plan certificates" as defined in Section
2(a)(27) thereof;

(m) purchase insurance either through or from any Affiliate;

(n) purchase any Real Property on-which the total real estate
commission paid by the Trust to anyone exceeds 6% of the total purchase
price, or sell any real Property on

17
<PAGE>

which the total real estate commission paid by the Trust to anyone
exceeds 5% of the total sales price;

(o) purchase, sell or lease any Real Properties or Mortgages
to or from the Sponsor, Consolidated Capital Equities Corporation, the
Advisor or any of their Affiliates, including any Investor program in
which any of the foregoing may also be a general partner or sponsor; or

(p) issue convertible or non-convertible debt securities
(other than interests in REMICs and CMOs) to the public unless the
historical cash flow of the Trust or the substantiated future cash flow
of the Trust, excluding extraordinary items, is sufficient to cover the
interest on the debt securities.

ARTICLE VI

The Shares and Shareholders

6.1. Shares. The units into which the beneficial interest in the Trust
will be divided shall be designated as Shares, which Shares shall be all of one
class. All Shares shall have equal non-cumulative voting, distribution,
liquidation and other rights. All Shares shall be without par value. The
certificates evidencing the Shares shall be in such form and signed (manually or
by facsimile) on behalf of the Trust in such manner as the Trustees may from
time to time prescribe or as may be prescribed in the Trustees' Regulations. The
certificates shall be negotiable, and title thereto and to the Shares presented
thereby shall be transferred by assignment and delivery thereof to the same
extent and in all respects as a Share certificate of a California corporation.
There shall be no limit upon the number of Shares to be issued. The Shares may
be issued for such consideration as the Trustees in their sole discretion and in
good faith shall determine or by way of Share dividend or Share split in the
discretion of the Trustees. Shares reacquired by the Trust shall no longer be
deemed outstanding and shall have no voting or other rights unless and until
re-issued. Shares reacquired by the Trust may be canceled and restored to the
status of authorized and unissued Shares by action of the Trustees. All Shares
shall be fully paid and non-assessable by or on behalf of the Trust upon receipt
of full consideration for which they have been issued or without additional
consideration if issued by way of Share dividend or Share split. The Shares
shall not entitle the holder to preference, preemptive, appraisal, conversion,
or exchange rights of any kind.

6.2. Legal Ownership of Trust Estate. The legal ownership of the Trust
Estate and the right to conduct the business of the Trust are vested exclusively
in the Trustees, and the Shareholders shall have no interest therein other than
beneficial interest in the Trust conferred by their Shares issued hereunder, and
they shall have no right to compel any partition, divisions dividend or
distribution of the Trust or any of the Trust Estate.

6.3. Shares Deemed Personal Property. The Shares shall be deemed
personal property and shall confer upon the holders thereof only the interest
and rights specifically set forth in this Declaration. The death, insolvency or
incapacity of a Shareholder shall not dissolve or terminate

18
<PAGE>

the Trust or affect its continuity nor give his legal representative any rights
whatsoever, whether against or in respect of other Shareholders, the Trustees or
the Trust Estate or otherwise except the sole right to demand and, subject to
the provisions of this Declaration, the Trustees' Regulations and any
requirements of law, to receive a new certificate for Shares registered in the
name of such legal representative, in exchange for the certificate held by such
Shareholder.

6.4. Share Record; Issuance and Transferability of Shares. Records
shall be kept by or on behalf of and under the direction of the Trustees, which
records shall contain the names and addresses of the Shareholders, the number of
Shares held by them respectively, and the numbers of the certificates
representing the Shares, and in which there shall be recorded all transfers of
Shares. Certificates shall be issued, listed and transferred in accordance with
the Trustees' Regulations. The Persons in whose names certificates are
registered on the records of the Trust shall be deemed the absolute owners of
the Shares represented thereby for all purposes of this Trust, but nothing
herein shall be deemed to preclude the Trustees or officers, or their agents or
representatives, from inquiring as to the actual ownership of Shares. Until a
transfer is duly effected on the records of the Trust, the Trustees shall not be
affected by any notice of such transfer, either actual or constructive. The
receipt by the Person in whose name any Shares are registered on the records of
the Trust or by the duly authorized agent of such Person, or if such Shares are
so registered in the names of more than one Person, the receipt by any one of
such Persons, or by the duly authorized agent of such Persons, shall be a
sufficient discharge for all dividends or distributions payable or deliverable
in respect of such Shares and from all liability to see the application thereof.

Shares shall be transferable on the records of the Trust only by
the record holder thereof or by his agent, thereunto duly authorized in writing
upon delivery to the Trustees or a transfer agent of the certificate or
certificates therefor, properly endorsed or accompanied by duly executed
instruments of transfer and accompanied by all necessary documentary stamps
together with such evidence of the genuineness of each such endorsement
execution or authorization and of other matters as may reasonably be required by
the Trustees or such transfer agent. Upon such delivery, the transfer shall be
recorded in the records of the Trust and a new certificate for the Shares so
transferred shall be issued to the transferee, and, in case of a transfer of
only a part of the Shares represented by any certificate, a new certificate for
the balance shall be issued to the transferor. Any Person becoming entitled to
any Shares in consequence of the death of a Shareholder or otherwise by
operation of law shall be recorded as the holder of such Shares and shall
receive a new certificate therefor but only upon delivery to the Trustees or a
transfer agent of instruments and other evidence required by the Trustees or the
transfer agent to demonstrate such entitlement, the existing certificate for
such Shares and such necessary releases from applicable government authorities.

In case of loss, mutilation or destruction of any certificates
for Shares, the Trustees may issue or cause to be issued a replacement
certificate on such terms and subject to such rules and regulations as the
Trustees may from time to time prescribe. Nothing in this declaration shall
impose u on the Trustee or a transfer agent a duty or limit their rights to
inquire into adverse claims.

6.5. Dividends or Distributions to Shareholders. The Trustees may from
time to time declare and pay to Shareholders such dividends or distributions in
cash or other form out of current or accumulated Income, capital, capital gains,
principal, surplus, proceeds from the increase or

19
<PAGE>

refinancing of Trust obligations, or from the sale of portions of the Trust
Estate or from any other source as the Trustees in their discretion shall
determine. Shareholders shall have no right to any dividend or distribution
unless and until such dividend or distribution is declared by the Trustees. The
Trustees shall furnish the Shareholders with a statement in writing advising as
to the source of the funds so distributed or, if the source thereof has not then
been determined, the communication shall so state and in such event the
statement as to such source shall be sent to the Shareholders not later than
sixty (60) days after the close of the fiscal year in which the distribution was
made.

6.6. Transfer Agent, Dividend Disbursing Agent and Registrar. The
Trustees shall have power to employ one or more transfer agents, dividend
disbursing agents and registrars and to authorize them on behalf of the Trust to
keep records, to hold and disburse any dividends and distributions, and to have
and perform, in respect to all original issues and transfers of Shares,
dividends and distributions and reports and communications to Shareholders, the
powers and duties usually had and performed by transfer agents, dividend
disbursing agents and registrars of a California corporation.

6.7. Shareholders' Meetings. There shall be an annual meeting of the
Shareholders at such time and place as the Trustees' Regulations shall
prescribe, at which the Trustees shall be elected and any other proper business
may be conducted. The Annual Meeting of Shareholders shall be held after
delivery to the Shareholders of the Annual Report and within six (6) months
after the end of each fiscal year, commencing with the 1982 fiscal year. Special
meetings of Shareholders may be called upon the written request of Shareholders
holding not less than ten percent (10%) of the outstanding Shares of the Trust
entitled to vote in the manner provided in the Trustees' Regulations. If there
shall be no Trustees, the officers of the Trust shall promptly call a special
meeting of the Shareholders for the election of successor Trustees. Notice of
any special meeting shall state the purposes of the meeting. A majority of the
outstanding Shares entitled to vote at any meeting represented in person or by
proxy shall constitute a quorum at any such meeting. Whenever any action is to
be taken by the Shareholders, it shall, except as otherwise required by this
Declaration or by law, be authorized by a majority of the votes cast at a
meeting of Shareholders by holders of Shares entitled to vote thereon, which
Shares are not entitled to cumulative voting. The affirmative vote at a meeting
of Shareholders of the holders of a majority of all outstanding Shares shall be
required to approve the principal terms of the transaction and the nature and
amount of the consideration involving any sale, lease, exchange or other
disposition of fifty percent (50%) or more of the Trust Estate in a single sale,
or in multiple sales in the same twelve- (12-) month period. Whenever
Shareholders are required or permitted to take any action, such action may be
taken without a meeting on written consent setting forth the action so taken,
signed by the holders of a majority of all outstanding Shares entitled to vote
thereon, or such larger proportion thereof as would be required for a vote of
Shareholders at a meeting. The vote or consent of Shareholders shall not be
required for the pledging, hypothecating, granting security interests in,
mortgaging, or encumbering of all or any of the Trust Estate, or for the sale,
lease, exchange or other disposition of less than fifty percent (50%) of the
Trust Estate in a single sale, or in multiple sales in the same twelve- (12-)
month period.

6.8. Proxies. Whenever the vote or consent of Shareholders is required
or permitted under this declaration, such vote or consent may be given either
directly by the Shareholders or to proxies

20
<PAGE>

in the form prescribed in the Trustees' Regulations. The Trustees may solicit
such proxies from the Shareholders or any of them in any matter requiring or
permitting the Shareholders' vote or content.

6.9. Reports to Shareholders.

(a) Not later than one hundred twenty (120) days after the close
of each fiscal year of the Trust, the Trustees shall mail a report of
the business and operation of the Trust during such fiscal year to the
Shareholders, which report shall constitute the accounting of the
Trustees for such fiscal year. The report (hereinafter "Annual Report")
shall be in such form and have such content as the Trustees deem
proper. The Annual Report shall include a statement of assets and
liabilities and a statement of income and expenses of the Trust. Such
financial statements shall be accompanied by the report of an
independent certified public accountant thereon. A manually signed copy
of the accountant's report shall be filed with the Trustees.

(b) At least quarterly the Trustees shall send to the
Shareholders interim reports having such form and content as the
Trustees deem proper.

6.10. Fixing Record Date. The Trustees' Regulations may provide for
fixing, or, in the absence of such provision, the Trustees may fix in advance, a
date as the record date for determining the Shareholders entitled to notice of
or to vote at any meeting of Shareholders or to express consent to any proposal
without a meeting, or for the purpose of determining Shareholders entitled to
receive payment of any dividend or distribution (whether before or after
termination of the Trust) or any Annual Report or other communication from the
Trustees, or for any other purpose. The record date so fixed shall be not less
than five (5) days nor more than fifty (50) days prior to the date of the
meeting or event for purposes for which it is fixed.

6.11. Notice to Shareholders. Any notice of meeting or other notice,
communication or report to any Shareholder shall be deemed duly delivered to
such Shareholder when such notice, communication or report is deposited, with
postage thereon prepaid, in the United States mail, addressed to such
Shareholder at his address as it appears on the records of the Trust or is
delivered in person to such Shareholder.

6.12. Shareholders' Disclosures; Redemption of Shares. The Shareholders
shall, upon demand, disclose to the Trustees in writing such information with
respect to direct and indirect ownership of the Shares as the Trustees deem
necessary to comply with the provisions of the Internal Revenue Code and the
regulations thereunder, as the same shall be from time to time amended, or to
comply with the requirements of any other taxing authority. If the Trustees
shall at any time and in good faith be of the opinion that direct or indirect
ownership of Shares of the Trust has or may become concentrated to an extent
which would prevent the Trust from qualifying as an REIT under the REIT
Provisions of the Internal Revenue Code, the Trustees shall have the power by
lot or other means deemed equitable by them to prevent the transfer of and/or
call for redemption a number of such Shares sufficient in the opinion of the
Trustees to maintain or bring the direct or indirect ownership of Shares of the
Trust into conformity with the requirements for such an REIT. The redemption
price shall be (i) the last reported sale price of the Shares on the last
business day prior

21
<PAGE>

to the redemption date on the principal national securities exchange on which
the Shares are listed or admitted to trading; or (ii) if the Shares are not so
listed or admitted to trading, the average of the highest bid and lowest asked
prices on such last business day as reported by the National Quotation Bureau
Incorporated or a similar organization selected by the Trust for such purpose;
or (iii) if not determined as aforesaid, as determined in good faith by the
Trustees. From and after the date fixed for redemption by the Trustees, the
holder of any Shares so called for redemption shall cease to be entitled to
dividends, distributions, voting rights and other benefits with respect to such
Shares, excepting only to the right to payment of the redemption price fixed as
aforesaid. For the purpose of this Section 6.12, the term "individual" shall be
construed as provided in Section 542 (a) (2) of the Internal Revenue Code or
any, successor provision, and "ownership" of Shares shall be determined as
provided in Section 544 of the Internal Revenue Code or any successor provision.

6.13. Right to Refuse to Transfer Shares. Whenever it is deemed by them
to be reasonably necessary to protect the tax status of the Trust, the Trustees
may require a statement or affidavit from each Shareholder or proposed
transferee of Shares setting forth the number of Shares already owned by him and
any related person specified in the form prescribed by the Trustees for that
purpose. If, in the opinion of the Trustees, which shall be conclusive upon any
proposed transferor or proposed transferee of Shares any proposed transfer would
jeopardize the status of the Trust as an REIT under the Internal Revenue Code of
1954, as now enacted or as hereafter amended, the Trustees may refuse to permit
such transfer. Any attempted transfer for which the Trustees have refused their
permission shall be void and of no effect to transfer any legal or beneficial
interest in the Shares. All contracts for the sale or other transfer of Shares
shall be subject to this provision.

6.14. Issuance of Shares. Notwithstanding any other provision of this
Declaration, the Trust may issue an unlimited number of Shares from time to time
in the Trustees sole discretion and in good faith. Any Security issued in any
such Share shall have the same characteristics and entitle the registered holder
thereof to the same rights as any identical Securities of the same class or
series issued separately by the Trust.

ARTICLE VII

Liability of Trustees, Shareholders
and Officers, and Other Matters

7.1. Exculpation of Trustees, Officers and Others. No Trustee,
officer, employee or agent of the Trust shall be liable for obligations or
contracts of the Trust or liable in tort or otherwise in connection with the
affairs of this Trust, to the Trust or to any Shareholder, Trustee, officer,
employee or agent of the Trust or to any other Person for any action or failure
to act (including, without limitation, the failure to compel in any way any
former or acting Trustee to redress any breach of trust), except only that
arising from his own willful misfeasance, bad faith, gross negligence, or
reckless disregard of duty.

7.2. Limitation of Liability of Shareholders, Trustees and Officers.
The Trustees, officers, employees and agents of the Trust, in incurring any
debts, liabilities or obligations or in taking or

22
<PAGE>

omitting any other actions for or in connection with the Trust are, and shall be
deemed to be, acting as Trustees, officers, employees or agents of the Trust and
not in their own individual capacities. Except to the extent provided in Section
7.1, no Trustee, officer, employee or agent shall, nor shall any Shareholder, be
liable for any debt, claim, demand, judgment, decree, liability or obligation of
any kind, against or with respect to the Trust, arising out of any action taken
or omitted for or on behalf of the Trust, and the Trust shall be solely liable
therefor, and resort shall be had solely to the Trust Estate for the payment or
performance thereof. Each Shareholder shall be entitled to pro rata indemnity
from the Trust Estate if, contrary to the provisions hereof, such Shareholder
shall be held to any personal liability.

7.3. Express Exculpatory Clauses and Instruments. In all agreements,
obligations, instruments, and actions in regard to the affairs of this Trust,
this Trust and not the Shareholders, officers, employees or agents shall be the
principal and entitled as such to enforce the same collect damages, and take all
other action. All such agreements, obligations instruments, and actions shall be
made, executed, incurred, or taken by or In the name and on behalf of this Trust
or by the Trustees as Trustees hereunder, but not personally. All such
agreements, obligations, and instruments shall acknowledge notice of this
paragraph or shall refer to this Declaration and contain a statement to the
effect that the name of this Trust refers to the Trustees as Trustees but not
personally, and that no Trustee, Shareholder, officer, employee or agent shall
be held to any personal liability thereunder, and neither the Trustees nor any
officer, employee or agent shall have any power or authority to make, execute,
incur, or take any agreement, obligation, instrument or action unless the
requirements of this paragraph are met; however, the omission of such provisions
from any such instrument shall not render the Shareholders or any Trustee or any
officer, employee or agent liable, nor shall the Trustees or any officer,
employee or agent of the Trust be liable to anyone for such omission.

7.4. Indemnification and Reimbursement of Trustees and Officers. Any
Person made a party to any action, suit or proceeding or against whom a claim or
liability is asserted by reason of the fact that he, his testator or intestate
was or is a Trustee or officer, employee or agent or active in such capacity on
behalf of the Trust shall be indemnified and held harmless by the Trust against
judgments, fines, amounts paid on account thereof (whether in settlement or
otherwise) and reasonable expenses, including attorneys' fees, actually and
reasonably incurred by him in connection with the defense of such action, suit,
proceeding, claim or alleged liability or in connection with any appeal therein,
whether or not the same proceeds to judgment or is settled or otherwise brought
to a conclusion, provided, however, that no such Person shall be so indemnified
or reimbursed for any claim, obligation or liability which arose out of such
Person's willful misfeasance, bad faith, gross negligence or reckless disregard
of duty, and provided further that such Person gives prompt notice thereof,
executes such documents and takes such action as will permit the Trust to
conduct the defense or settlement thereof and cooperates therein. In the event
of a settlement approved by the Trustees of any such claim, alleged liability,
action, suit or proceeding, indemnification and reimbursement shall be provided
except as to such matters covered by the settlement which the Trust is advised
by its counsel arose from such Person's willful misfeasance, bad faith, gross
negligence, or reckless disregard of duty. Expenses incurred in defending a
civil or criminal action, suit or proceeding may be paid by the Trust in advance
of the final disposition of such action, suit or proceeding as authorized by the
Trust in the specific action upon receipt of an undertaking by or on behalf of a
Person indemnified to pay over such amount unless it shall

23
<PAGE>

ultimately be determined he is entitled to be indemnified by the Trust as
authorized herein. Such rights of indemnification and reimbursement shall be
satisfied only out of the Trust Estate. The rights accruing to any Person under
these provisions shall not exclude any other right to which he may be lawfully
entitled, nor shall anything contained herein restrict the right of the Trust to
indemnify or reimburse such Person in any proper case even though not
specifically provided for herein, nor shall anything contained herein restrict
such Person's right to contribution as may be available under applicable law.
The Trust shall have power to purchase and maintain insurance on behalf of any
Person entitled to indemnity hereunder against any liability asserted against
him and incurred by him in a capacity mentioned above, or arising out of his
status as such, whether or not the Trust would have the power to indemnify him
against such liability under the provisions hereof.

7.5. Right of Trustees, Officers and Others To Own Shares or Other
Property and To Engage in Other Business. Any Trustee, officer, employee or
agent of the Trust may acquire, own, hold and dispose of Shares in the Trust,
for his individual account, and may exercise all rights of aShareholder to the
same extent and in the same manner as if he were not a Trustee, officer,
employee or agent of the Trust. Any Trustee, officer, employee or agent of the
Trust may have personal business interests and may engage in personal business
activities, which interests and activities may include the acquisition,
syndication, holding, management, operation or disposition, for his own account
or for the account of others, of interests in Mortgages, interests in Real
Property, or interests in Persons engaged in real estate business. Subject to
the provisions of Article IV, any Trustee, officer, employee or agent may be
interested as trustee, officer, director, stockholder, partner, member, advisor
or employee, or otherwise have a direct or indirect interest in any Person who
may be engaged to render advice or services to the Trust, and may receive
compensation from such Person as well as compensation as Trustee, officer, or
otherwise hereunder. None of these activities shall be deemed to conflict with
his duties and powers as Trustee or officer.

7.6. Transactions Between the Trust and Affiliated Persons. Except as
prohibited by this Declaration, and in the absence of fraud, a contract, act or
other transaction between the Trust and any other Person, or in which the Trust
is interested, shall be valid even though (a) one or more of the Trustees or
officers are directly or indirectly interested in, or connected with, or are
trustees, partners, directors, officers or retired officers of such other
Person, or (b) one or more of the Trustees or officers of the Trust,
individually or jointly with others, is a party or are parties to or directly or
indirectly interested in, or connected with, such contract, act or transaction.
No Trustee or officer shall be under any disability from or have any liability
as a result of entering into any such contract, act or transaction, provided
that (a) such interest or connection is disclosed or known to the Trustees and
thereafter the Trustees authorize such contract, act or other transaction by
vote sufficient for such purpose by an affirmative vote of the Trustees not so
interested, or (b) such interest or connection is disclosed or known to the
Shareholders, and thereafter such contract, act or transaction is approved by
the Shareholders, or (c) such contract, act or transaction is fair and
reasonable to the Trust at the time it is authorized by the Trustees or by the
Shareholders.

The Trust shall not purchase or lease, directly or indirectly, any
Real Property or purchase any Mortgage from the Advisor or any affiliated
Person, or from any partnership in which any of the foregoing may also be a
general partner, and the Trust will not sell or lease, directly or indirectly,
any of its Real Property or sell any Mortgage to any of the foregoing Persons.
The

24
<PAGE>

Sponsor or the Advisor may make Mortgage Loans or purchase Real Property in
their own name (and assume loans in connection therewith) and temporarily hold
title thereto for the purpose of facilitating the acquisition of such Mortgage
Loans or Real Property or the borrowing of money or obtaining of financing for
the Trust, or for any other purpose related to the business of the Trust,
provided that such Mortgage Loan or Real Property is purchased by the Trust for
a price no greater than the cost of such Mortgage Loan or Real Property to the
Sponsor or Advisor and provided there is no difference in interest rates of the
loans related thereto at the time acquired by the Sponsor or Advisor and the
time acquired by the Trust, nor any other benefit to the Sponsor or Advisor
arising out of such transaction apart from compensation otherwise permitted by
the Prospectus.

Notwithstanding any other provisions of this Declaration, the
Trust shall not, directly or indirectly, engage in any transaction with any
Trustee, officer or employee of the Trust or any director, officer or employee
of the Advisor, of Consolidated Capital Equities Corporation, or of any company
or other organization of which' any of the foregoing is an Affiliate, except for
(a) the execution and performance of the agreements contemplated by Article IV
hereof; (b) transactions involving the purchase of Securities of the Trust on
the same terms on which such Securities are then being offered to all holders of
any class of Securities of the Trust or to the public; and (c) transactions with
Consolidated Capital Equities Corporation or the Advisor or Affiliates thereof
involving loans, real estate brokerage services, mortgage brokerage services,
real property management services, the servicing of Mortgages, the leasing of
real or personal property, or other services, provided such transactions are on
terms not less favorable to the Trust than the terms on which non-affiliated
parties are then making similar loans or performing similar services for
comparable entities in the same area and are not entered into on an exclusive
basis with such Person; provided, however, that any transaction referred to in
clause (c) may be entered into only upon approval by affirmative vote or consent
of a majority of the Trustees who are not, other than as Trustees, interested in
or Affiliates of any Person who is interested in the transaction, and provided
further that for providing real estate brokerage services such Affiliates of the
Advisor (together with any non-affiliated parties) may receive a real estate
brokerage commission of up to and including six percent (6%) of the total
purchase price of each Real Property investment acquired or five percent (5%) of
the total sales price of each Real Property investment sold by the Trust on
sales to or purchases from third parties which are handled by such Affiliate.
Such real estate brokerage commissions may be paid by the seller or buyer of the
property or by the Trust, and in the case of purchases the aggregate of the
total purchase price of the Investment property and such real estate brokerage
commission shall not exceed the Appraised Value of such property. The
simultaneous acquisition by the Trust and the Advisor or any Affiliate of the
Advisor of participations in any investment shall not be deemed to constitute
the purchase or sale of property by one of them to the other. This Section 7.6
shall not prevent the payment to any Person of commissions or fees for the
so-called "private placement" of such Securities with investors. The Trustees
are not restricted by this Section 7.6 from forming a corporation, partnership,
trust or other business association owned by the Trustees or by their nominees
for the purpose of holding title to property of the Trust, providing the
Trustees' motive for the formation of such business association is not for their
own enrichment.

7.7. Restriction of Duties and Liabilities. To the extent that the
nature of this Trust (that is, as business trust) will permit, the duties and
liabilities of Shareholders, Trustees and officers shall

25
<PAGE>

in no event be greater than the duties and liabilities of shareholders,
directors and officers of a California corporation. The Shareholders, Trustees
and officers shall in no event have any greater duties or liabilities than those
imposed by applicable laws as shall be in effect from time to time.

7.8. Persons Dealing with Trustees or Officers. Any act of the
Trustees or officers purporting to be done in their capacity as such shall, as
to any Persons dealing in good faith with such Trustees or officers, be
conclusively deemed to be within the purposes of this Trust and within the
powers of the Trustees and officers.

The Trustees may authorize any officer or officers or agent or
agents to enter into any contract or execute any instrument In the name and on
behalf of the Trust and/or Trustees.

No Person dealing in good faith with the Trustees or any of them
or with the authorized officers, employees, agents or representatives of the
Trust shall be bound to see to the application of any funds or property passing
into their hands or control. The receipt of the Trustees, or any of them, or of
authorized officers, employees, agents, or representatives of the Trust for
monies or other consideration, shall be binding upon the Trust.

7.9. Reliance. The Trustees and officers may consult with counsel, and
the advice or opinion of such counsel shall be full and complete personal
protection to all of the Trustees and officers, in respect to any action taken
or suffered by them in good faith and in reliance on and in accordance with such
advice or opinion. In discharging their duties, Trustees and officers, when
acting in good faith, may rely upon financial statements of the Trust
represented to them to be correct by the Chairman or the officer of the Trust
having charge of its books of account, or stated in a written report by an
independent certified public accountant fairly to present the financial position
of the Trust. The Trustees may rely, and shall be personally protected in
acting, upon any instrument or other document believed by them to be genuine.

7.10. Income Tax Status. Anything to the contrary herein
notwithstanding and without limitation of any rights of indemnification or
non-liability of the Trustees herein, said Trustees by this Declaration make no
commitment or representation that the Trust will qualify for the dividends paid
deduction permitted by the Internal Revenue Code and by the Rules and
Regulations thereunder pertaining to real estate investment trusts in any given
year. The failure of the Trust to qualify as a real estate investment trust
under the Internal Revenue Code shall not render the Trustees liable to the
Shareholders or to any other person or in any manner operate to annul the Trust.

ARTICLE VIII

Duration, Amendment, Termination
and Qualification of Trust

8.1. Duration of Trust. Unless the Trust is sooner terminated as
otherwise provided herein, the Trust shall continue in such manner that the
Trustees shall have all the powers and

26
<PAGE>

discretions, express and implied, conferred upon them by law or by this
Declaration, until the expiration of twenty (20) years after the death of the
last survivor of the following persons.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Name Date of Birth Parents and Present Residence
- ---- ------------- -----------------------------
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Anna Louise Carlson 1/16/66 Mr. & Mrs. Don W. Carlson
2 Sand Hill Rod
Orinda, CA 94563
- ------------------------------------------------------------------------------------------------
Deborah Ellen Casparian 7/8/67 Mr. & Mrs. Robert J. Casparian
1945 Parkmont Drive
Danville, CA 94526
- ------------------------------------------------------------------------------------------------
Margaret Ella De Monte 4/3/75 Mr. & Mrs. Robert J. De Monte
2045 Oakland Avenue
Piedmont, CA 94611
- ------------------------------------------------------------------------------------------------
Scott Jay Kaplan 4/16/80 Mr. & Mrs. Jay Kaplan
167 Avenida Miraflores
Tiburon, CA 94920
- ------------------------------------------------------------------------------------------------
Melissa Dawn Sheldon 1/9/78 Mr. & Mrs. Terry E. Sheldon
451 Montcrest Place
Danville, CA 94526
- ------------------------------------------------------------------------------------------------
</TABLE>

8.2. Termination of Trust.

(a) The Trust may be terminated by the affirmative vote or
written consent of the holders of a majority of all outstanding Shares
entitled to vote thereon; provided, however, that if the California
Commissioner of Corporations has suspended for more than thirty (30)
days, or revoked a permit issued by him under the California
Corporations Code finding that the Trust is a real estate investment
trust, this Trust may be terminated by the holders of ten percent (10%)
or more of all outstanding Shares. Upon the termination of the Trust:

(i) The Trust shall carry on no business except for the
purpose of winding up its affairs.

(ii) The Trustees shall proceed to wind up the affairs of the
Trust, and all of the powers of the Trustees under this
Declaration shall continue until the affairs of the Trust shall
have been wound up, including the power to fulfill or discharge
the contracts of the Trust, collect its assets, sell, convey,
assign, exchange, transfer or otherwise dispose of all or any
part of the remaining Trust Estate to one or more Persons at
public or private sale for consideration which may consist in
whole or in part of cash, Securities or other property of any
kind, discharge or pay its liabilities and do all other acts
appropriate to liquidate its business, provided, that any sale,
conveyance,

27
<PAGE>

assignment, exchange, transfer or other disposition of fifty
percent (50%) or more of the Trust Estate in a single transaction
or in multiple transactions in the same twelve (12-) month period
shall require approval of the principal terms of the transaction
and the nature and amount of the consideration by vote or consent
of the holders of a majority of all the outstanding Shares
entitled to vote thereon.

(iii) After paying or adequately providing for the payment of
all liabilities, and upon receipt of such releases, indemnities,
and refunding agreements as they deem necessary for their
protection, the Trustees may distribute the remaining Trust
Estate, in cash or in kind, or partly in each, among the
Shareholders according to their respective rights.

(b) After termination of the Trust and distribution to the
Shareholders as herein provided, the Trustees shall execute and lodge
among the records of the Trust an instrument in writing setting forth
the facts of such termination, and the Trustees shall thereupon be
discharged from all further liabilities and duties hereunder, and the
rights and interests of all Shareholders shall thereupon cease.

(c) The Trustees shall liquidate the Trust's assets by making
liquidating distributions to Shareholders Mortgage loan proceeds shall
be distributed to Shareholders as the loans mature, except for
necessary reserves. The Trust's real property investments shall be sold
within ten years from the date of adoption of this Amendment; the cash
proceeds therefrom shall be distributed to Shareholders as cash is
received it the time of sale and/or as payments are received on any
financing provided by the Trust in connection with such sale. The
Trustees shall have full discretion, in their best judgment, to direct
the Trust to make additional real property investments until December
31, 1986. The Trustees shall also have full authority to direct such
liquidation in a manner so as to protect the value of the Trust's
assets.

8.3. Amendment Procedure.

(a) This Declaration may be amended by Shareholders holding a
majority of the outstanding Shares entitled to vote thereon. The
Trustees may also amend this Declaration without the vote or consent of
Shareholders to the extent they deem it necessary to conform this
declaration to the requirements of the REIT Provisions of the Internal
Revenue Code or to other applicable federal laws, rulings or
regulations, but the Trustees shall not be liable for failing to do so.

(b) No amendment may be made, under Section 8.3(a) above, which
would change any rights with respect to any outstanding Securities of
the Trust by reducing the amount payable thereon upon liquidation of
the Trust, or by diminishing or eliminating any voting rights
pertaining thereto, except with the vote or consent of the holders of
two-thirds of the outstanding Shares entitled to vote thereon.

28
<PAGE>

(c) A certification, in recordable form signed by a majority
of the Trustees setting forth an amendment and reciting that it was
duly adopted by the Shareholders or by the Trustees as aforesaid, or a
copy of the Declaration as amended, in recordable form and executed by
a majority of the Trustees shall be conclusive evidence of such
amendment when lodged among the records of the Trust.

(d) Nothing contained in this Declaration shall permit the
amendment of this Declaration to impair the exception from personal
liability of the Shareholders, Trustees, officers, employees and agents
of this Trust.

8.4. Qualification Under the REIT Provisions of the Internal Revenue
Code. It is intended that the Trust shall qualify as a "real estate investment
trust" under the REIT Provisions of the Internal Revenue Code during such period
as the Trustees shall deem it advisable so to qualify the Trust.

ARTICLE IX

Miscellaneous

9.1. Applicable Law. This Declaration is executed and acknowledged by
the Trustees in the State of California and with reference to the statutes and
laws thereof and the rights of all parties and the construction and effect of
every provision hereof shall be subject to and construed according to the
statutes and laws of said state.

9.2. Index and Headings for Reference Only. The index and headings
preceding the text articles and sections hereof have been inserted for
convenience and reference only and shall not be construed to affect the meaning,
construction or effect of this Declaration.

9.3. Successors in Interest. This Declaration and the Trustees'
Regulations shall be binding upon and inure to the benefit of the undersigned
Trustees and their successors, assigns, heirs, distributees, and legal
representatives and to the benefit of every Shareholder and his successors,
assigns, heirs, distributees, and legal representatives.

9.4. Inspection of Records. Trust records shall be available for
inspection and copying by shareholders at the same time and in the same manner
and to the extent that comparable records of a California corporation would be
available for inspection by shareholders under the laws of the state of
California. Except as specifically provided for in this Declaration,
Shareholders shall have no greater right than shareholders of a California
corporation to require financial or other information from the Trust, Trustees
or officers. Any federal or state securities administration or other similar
authority shall have the right, at reasonable times during business hours and
for proper purposes, to inspect the books and records of the Trust.

9.5. Counterparts. This Declaration may be simultaneously executed in
several counterpart, each of which when so executed shall be deemed to be an
original, and such

29
<PAGE>

counterparts together shall constitute one and the same instrument, which shall
be sufficiently evidenced by any such original counterpart.

9.6. Provisions of the Trust in Conflict with Law or Regulations.

(a) The provisions of this Declaration are severable and if the
Trustees shall determine, with the advice of counsel, that any one or
more of such provisions (the "Conflicting Provisions") are in conflict
with the REIT Provisions of the Internal Revenue Code or with other
applicable laws or regulations, the Conflicting Provisions shall be
deemed never to have constituted a part of the Declaration, provided,
however, that such determination by the Trustees shall not affect or
impair any of the remaining provisions of this Declaration or render
invalid or improper any action taken or omitted (including, but not
limited to, the election of Trustees) prior to such determination A
certification in recordable form signed by a majority of the Trustees
setting forth any such determination and reciting that it was duly
adopted by the Trustees or a copy of this Declaration with the
Conflicting Provisions removed pursuant to such determination, in
recordable form signed by a majority of the Trustees, shall be
conclusive evidence of such determination when lodged in the records of
the Trust. The Trustees shall not be liable for failure to make any
determination under this Section 9.6(a). Nothing in this Section 9.6(a)
shall in any way limit or affect the right of the Trustees to amend
this Declaration as provided in Section 8.3(a).

(b) If any provisions of this Declaration shall be held invalid
or unenforceable, such invalidity or unenforceability shall attach only
to such provision and shall not in any manner affect or render invalid
or unenforceable any other provision of this Declaration, and this
Declaration shall be carried out as if any such invalid or
unenforceable provision were not contained herein.

9.7. Certifications. The following certifications shall be final and
conclusive as to any Persons dealing with the Trust:

(a) A certification of a vacancy among the Trustees by reason of
resignation, removal, increase in the number of Trustees, incapacity,
death or otherwise, when made in writing by a majority of the remaining
Trustees;

(b) A certification as to the persons holding office as Trustees
or officers at any particular time, when made in writing by the
Secretary of the Trust or by any Trustee;

(c) A certification that a copy of this Declaration or of the
Trustees' Regulations is a true and correct copy thereof as then in
force, when made in writing by the Secretary of the Trust or by any
Trustee;

(d) The certifications referred to in Sections 8.3(c) and 9.6(a)
hereof; and

(e) A certification as to any actions by Trustees, other than the
above, when made in writing by the Secretary of the Trust or by any
Trustee.

30
<PAGE>

9.8. Recording and Filing. A copy of this Declaration and any
amendments shall be recorded in the office of the County Recorder of the County
of Alameda California and in the office of the County Recorder or its equivalent
in every county where the Trust is or the Trustees are the record owner(s) of
Real Property, provided, however, that provision is made in such county for such
recording and further provided that this Declaration is accepted for recording.
This Declaration and any amendments may also be filed or recorded in such other
places as the Trustees deem appropriate.

IN WITNESS WHEREOF, the undersigned have executed this Declaration of
Trust as of the date first hereinabove set forth.

/s/ David V. John /s/ Betty L. Hood-Gibson
- -------------------------------- ----------------------------------
David V. John Betty L. Hood-Gibson

/s/ Thomas J. Fitzmyers /s/ Albert H. Schaaff
- -------------------------------- ----------------------------------
Thomas J. Fitzmyers Albert H. Schaaff

/s/ Fred H. Field /s/ Douglas M. Temple
- -------------------------------- ----------------------------------
Fred H. Field Douglas M. Temple

State of California )
ss.
County of Alameda )

On this 24th day of July in the year 1987 before me, R. Scott, a Notary
Public, for the State of California duly commissioned and sworn, personally
appeared David V. John, Betty L. Hood-Gibson, Thomas J. Fitzmyers, Fred H.
Field, Albert H. Schaaf, and Douglas M. Temple, known to me to be the persons
whose names are subscribed to the within instrument, and acknowledged to me that
they executed the same.

IN WITNESS WHEREOF I have hereunto set my hand and affixed my official
seal in the County of Alameda, State of California, the day and year in this
certificate first above written.

/s/ R. Scott
----------------------------------
Notary Public, State of California

31
<PAGE>

TRUSTEES' CERTIFICATE

The undersigned, being a majority of the members of the Board of
Trustees of Consolidated Capital Special Trust (the "Trust"), hereby certify
that pursuant to the authorization granted in Section 1.1, of the Trust's Second
Amended and Restated Declaration of Trust (the "Declaration"), the Board of
Trustees of the Trust, at meeting held on April 13, 1989, approved Amendment No.
1 to the Declaration, a copy of which amendment is attached hereto as Exhibit A.

IN WITNESS WHEREOF, the undersigned have executed this Certificate this
22nd day of June, 1989.

/s/ William S. Friedman
----------------------------------
William S. Friedman

/s/ Gene E. Phillips
----------------------------------
Gene E. Phillips

/s/ Richard N. Lapp
----------------------------------
Richard N. Lapp

/s/ Michael E. Smith
----------------------------------
Michael E. Smith

/s/ Willie K. Davis
----------------------------------
Willie K. Davis

----------------------------------
Raymond J. J. Schrag

/s/ Randall K. Gonzales
----------------------------------
Randall K. Gonzales

/s/ James W. Hammond, Jr.
----------------------------------
James W. Hammond, Jr.

32
<PAGE>

On this 22nd day of June, 1989 before me, Rhonda Grimshaw, a Notary
Public, for the State of Texas duly commissioned and sworn, personally appeared
William S. Friedman, Gene E. Phillips, Richard H. Lapp, Michael E. Smith, Willie
K. Davis, Randall K. Gonzalez and James W. Hammond, Jr., known to me to be the
persons whose names are subscribed to the within instrument, and acknowledged to
me that they executed the same.

IN WITNESS WHEREOF I have hereunto set by hand and affixed my
official seal in the County of Dallas, State of Texas, the day and year in this
certificate first above written.

/s/ Rhonda Grimshaw
----------------------------------
Notary Public, State of Texas

(Seal)

33
<PAGE>

EXHIBIT A

Amendment No. 1 to the Second Amended
and Restated Declaration of Trust of Consolidated
Capital Special Trust
--------------------------------------------------

The Second and Amended Restated Declaration of Trust for Consolidated
Capital Special Trust is hereby amended as follows:

(a) Section 1.1 shall be deleted and replaced with the following:

1.1 Name. The name of the Trust shall be "Continental Mortgage
and Equity Trust." As far as practicable and except as otherwise
provided in this Declaration, the Trustees shall conduct the Trust's
activities, execute all documents, and sue or be sued in the name of
continental Mortgage and Equity Trust or in their names an Trustees of
Continental Mortgage and Equity Trust. If the Trustees determine that
the use of such name is not practicable, legal or convenient, they may
use such other designation or may adopt another name under which the
Trust may hold property or conduct its activities.

(b) The phrase "Consolidated Capital Special Trust", wherever it
appears on the Second Amended and Restated Declaration of Trust of Consolidated
Capital Special Trust, shall be deleted and replaced with the phrase
"Continental Mortgage and Equity Trust."

34
<PAGE>

OFFICER'S CERTIFICATE

The undersigned, being the President of Continental Mortgage and Equity
Trust ("the Trust") (formerly consolidated Capital Special Trust), hereby
certifies that the shareholders of the Trust, at the Trust's Annual Meeting of
Shareholders, approved Amendment Number 2 to the Trust's Second Amended and
Restated Declaration of Trust, a copy of which amendment is attached hereto as
Exhibit A. The Declaration of Trust was filed on July 29, 1987 as No.
87-2124-34.

IN WITNESS WHEREOF, I have executed this Certificate this 22nd day of
March, 1990.
CONTINENTAL MORTGAGE AND EQUITY TRUST

/s/ William S. Friedman
--------------------------------------
William S. Friedman
President

35
<PAGE>

On this 22nd day of March, 1990 before Marry Elizabeth Montianino, a
Notary Public, for the State of New York duly commissioned and sworn, personally
appeared William S. Friedman, known to me to be the person whose name is
subscribed to the within instrument, and acknowledged to me that he executed the
same.

IN WITNESS WHEREOF, I have hereunto set by hand and affixed my official
seal in the County of New York, State of New York, the day and year in this
certificate first above written.

/s/ Mary Elizabeth Montianino
--------------------------------------
Notary Public, State of New York

(Seal)

36
<PAGE>

EXHIBIT A

Amendment Number 2 to the
Second Amended and Restated
Declaration of Trust of
Continental Mortgage and Equity
Trust (formerly Consolidated
Capital Special Trust)

The Second Amended and Restated Declaration of Trust for Continental
Mortgage and Equity Trust (the "Declaration of Trust") is hereby amended as
follows:
(a) Section 8.2(c) of the Declaration of Trust is hereby
deleted in its entirety.

(b) The following language shall be added to Section 6.1 of
the Declaration of Trust following the fifth sentence of such Section:

The Trustees shall also have the power, in their sole
discretion, to effect reverse share splits on a pro-rata
basis and to redeem for cash any fractional Shares
outstanding as a result thereof.

37
<PAGE>

AMENDED DECLARATION OF TRUST

Amendment Number 3 to the Second Amended and
Restated Declaration of Trust of Continental
Mortgage and Equity Trust (formerly Consolidated
Capital Special Trust)

The Second Amended and Restated Declaration of Trust f or Continental
Mortgage and Equity Trust (the "Declaration of Trust") is hereby amended as
follows:
Subpart (g) of Section 5.3 of the Declaration of Trust, Recorded on
July 29, 1987, instrument No. 87-212434 in the Alameda County Records, shall be
deleted and replaced in its entirety with the following:

"(g) invest in any equity Security, including the Shares of other
REITs for a period in excess of 18 months except for shares of a
qualified REIT subsidiary, as defined in Section 856(i) of the
Internal Revenue Code, and regular or residual interests in
REMICs and except for the Shares of American Realty Trust, Inc.,
National Income Realty Trust and Transcontinental Realty Investor
owned as of February 18,1992, which investments may be held until
July 30, 1996."

IN WITNESS WHEREOF, I have executed this Amendment this 27th day of
May, 1992.
CONTINENTAL MORTGAGE AND EQUITY TRUST

/s/ William S. Friedman
------------------------------------
William S. Friedman
President and Trustee

38
<PAGE>

STATE OF TEXAS

COUNTY OF DALLAS

On this 27th day of May, 1992, before me, the undersigned a Notary
Public, for the State of Texas duly commissioned and sworn, personally appeared
William S. Friedman, known to me to be the person whose name is subscribed to
the within instrument, and acknowledged to me that he executed the same.

IN WITNESS WHEREOF, I have hereunto set by, hand and affixed by
official seal in the County of Dallas, State of Texas, the day and year in this
certificate first above written.

/s/ Cheryl Weaver
----------------------------------------
Notary Public, State of Texas

(SEAL)

39
<PAGE>

OFFICER'S CERTIFICATE

The undersigned, being the Senior Vice President of Continental
Mortgage and Equity Trust ("the Trust") (formerly Consolidated Capital Special
Trust), hereby certifies that the shareholders of the Trust, at the Trust's
Annual Meeting of Shareholders, approved Amendment Number 4 to the Trust's
Second Amended and Restated Declaration of Trust, a copy of which amendment is
attached hereto as Exhibit "A". The Declaration of Trust was filed on July 29,
1987 as No. 87-212434.

IN WITNESS WHEREOF, I have executed this Certificate this 12th day of
June, 1996.

CONTINENTAL MORTGAGE AND EQUITY TRUST

/s/ Robert A. Waldman
----------------------------------------
Robert A. Waldman, Senior Vice President

STATE OF TEXAS ss.
ss.
COUNTY OF DALLAS ss.

The foregoing Officer's Certificate was acknowledged before me this
12th day of June, 1996 by Robert A. Waldman, Senior Vice President of
Continental Mortgage and Equity Trust.

/s/ Alan O. Goodrich
-------------------------------------
Notary Public, State of Texas
My Commission Expires: 3/2/97

(SEAL)

40
<PAGE>

AMENDMENT NO. 4 TO THE SECOND AMENDED AND RESTATED
DECLARATION OF TRUST OF CONTINENTAL MORTGAGE AND EQUITY TRUST

The Second and Amended and Restated Declaration of Trust of Continental
Mortgage and Equity Trust is hereby amended as follows:

(a) Section 5.3 shall be deleted and replaced in its entirety with the
following:

5.3 Restrictions. The Trustees shall not:

(a) invest in any foreign currency, bullion or
commodities;

(b) invest in contracts of sale for real estate,
except in conjunction with acquisition or sale of Real Property or
when held as security for Mortgages made or acquired by the Trust;

(d) issue warrants, options or rights to buy
Shares, except as part of a ratable issue to Shareholders or as
part of a public offering or as part of a financial arrangement
with parties other than the Advisor or directors, Trustees,
officers or employees of the Trust or the Advisor or as part of a
ratable distribution to Shareholders;

(e) [REPEALED EFFECTIVE MAY 31, 1996]

(f) issue equity Securities of more than one
class (other than convertible obligations, warrants, rights and
options, and regular or residual interests in REMICs);

(g) [REPEALED EFFECTIVE MAY 31, 1996]

(h) make any loan to the Sponsor of the Trust,
Consolidated Capital Equities Corporation, the Advisor or any
of their Affiliates;

(i) engage in trading as compared with investment
activities, or engage in the business of underwriting or agency
distribution of Securities issued by others, but this prohibition
shall not prevent the Trust from selling participations or
interests in Mortgage Loans or Real Property or from selling or
pledging a pool of notes receivable from property sales or selling
interests in REMICs or CMOs;

(j) invest more than 10% of total Trust assets in
Junior Mortgage Loans, excluding Wrap-Around Mortgage Loans;

41
<PAGE>

(k) acquire Securities in any company holding
investments or engaging in activities prohibited by this
Section;

(l) issue "redeemable securities," as defined in
Section 2(a) (32) of the Investment Company Act of 1940, "face-
amount certificates of the installment type" as defined in Section
2(a) (15) thereof and "periodic payment plan certificates" as
defined in Section 2(a) (27) thereof;

(m) purchase insurance either through or from any
Affiliate;

(n) purchase any Real Property on which the
total real estate commission paid by the Trust to anyone exceeds
6% of the total purchase price, or sell any Real Property on which
the total real estate commission paid by the Trust to anyone
exceeds 5% of the total sales price;

(o) purchase, sell or lease any Real Properties or
Mortgages to or from the Sponsor, Consolidated Capital Equities
Corporation, the Advisor or any of their Affiliates, including any
investor program in which any of the foregoing may also be a
general partner or sponsor; or

(p) issue convertible or non-convertible debt
securities (other than interests in REMICs and CMOs) to the public
unless the historical cash flow of the Trust or the substantiated
future cash flow of the Trust, excluding extraordinary items, is
sufficient to cover the interest on the debt securities.

<PAGE>

EXHIBIT 3.6

RESTATED TRUSTEES' REGULATIONS
OF CONTINENTAL MORTGAGE AND EQUITY TRUST
(formerly Consolidated Capital Special Trust)
As of April 21, 1989

ARTICLE I

Officers

Section 1. Enumeration. The officers of Consolidated Capital Special
Trust (the "Trust") shall be a Presidents one or more Vice Presidents, a
Secretary, a Treasurer, and such other officers as are elected by the Trustees,
including in their discretion a Chairman of the Board. Officers shall be elected
by, and shall hold office at the pleasure of the Trustees. When the duties do
not conflict, any two or more offices, except those of President and Secretary,
or President and Assistant Secretary, may be held by the same person.

Section 2. Powers and Duties of the Chairman of the Board. The Chairman
of the Board, if there shall be such an officer, shall, if present, preside at
all meetings of the Trustees and exercise and perform such other powers and
duties as may be from time to time assigned to him by the Trustees.

Section 3. Powers and Duties of the President. Subject to such
supervisory powers, if any, as may be given by the Trustees to the Chairman of
the Board, if there be such an officer, the President shall be the chief
executive officer of the Trust and, subject to the control of the Trustees,
shall have general supervision, direction and control of the business of the
Trust and its employees and shall exercise such general powers of management as
are usually vested in the office of president of a corporation. He shall preside
at all meetings of the Shareholders and in the absence of the Chairman of the
Board, or if there be none, at all meetings of the Trustees. He shall be, ex
officio, a member of all standing committees.

Section 4. Powers and Duties of the Vice President. In the absence or
disability of the President, the Vice Presidents in order of their rank as fixed
by the Trustees or, if not ranked, the Vice President designated by the
Trustees, shall perform all of the duties of the President and when so acting
shall have all the powers of and be subject to all the restrictions upon the
President. The Vice Presidents shall have such other powers and perform such
other duties as are prescribed for them from time to time by the Trustees.

Section 5. Duties of the Secretary. The Secretary shall:

(a) Minutes. Keep full and complete minutes of the meetings of
the Trustees and of the meetings of the Shareholders and give notice, as
required, of all such meetings;

1
<PAGE>

(b) Trust Seal. Keep the seal of the Trust, and affix the same to
all instruments executed by the Trust which requires it;

(c) Books and Other Records. Maintain custody of and keep the
books of account and other records of the Trust except such as are in the
custody of the Treasurer;

(d) Share Register. Keep at the principal office of the Trust
a share register, or duplicate share register if a transfer agent is
employed to keep the original share register, showing the ownership and
transfers of ownership of all Shares; and

(e) General Duties. Generally, perform all duties which pertain
to his office and which are required by the Trustees.

Section 6. Duties of the Treasurer. The Treasurer shall:

(a) Books and Other Records. Maintain custody of and keep books
of account and other records of the Trust, except such as are in the
custody of the Secretary;

(b) Receipt, Deposit and Disbursement of Funds. Receive, deposit
and disburse funds belonging to the Trust; and

(c) General Duties. Generally, the Treasurer shall perform all
duties which pertain to his office and which are required by the Trustees.

ARTICLE II

Trustees

Section 1. Number. The authorized number of Trustees shall be 15 but in
no event shall the number of Trustees be less than 3 for more than 60 days.

Section 2. Qualifying Shares Not Required. Trustees need not be
Shareholders of the Trust.

Section 3. Quorum. A simple majority of the Trustees shall constitute a
quorum.

Section 4. Election. Trustees shall be elected at each Annual Meeting of
Shareholders and shall continue in office until the election of their
successors. If Trustees are not elected at an annual meeting or if such meeting
is not held, Trustees may be elected at a special meeting of Shareholders.

Section 5. Vacancies. Vacancies occurring among the Trustees (except in
case of the removal of one or more Trustees under provisions of Section 2.3 of
the Declaration) shall be filled by a majority of the remaining Trustees, though
less than a quorum, or by a sole remaining Trustee,

2
<PAGE>

and the person so appointed shall hold office until his successor is elected at
an annual, regular, or special meeting of the Shareholders.

Section 6. Place of Meeting. Meetings of the Trustees shall be held at
the principal office of the Trust or at such place within or without the state
of California as is fixed from time to time by resolution of the Trustees or by
written consent of all Trustees. Whenever a place other than the principal
office is fixed by resolution as the place at which future meetings are to be
held, written notice thereof shall be sent not later than the following business
day to all Trustees who are absent from the meeting at which the resolution was
adopted.

Section 7. Organization Meeting. Immediately following each Annual
Meeting of Shareholders, a regular meeting of the Trustees shall be held for the
purposes of organizing, electing officers, and transacting other business.
Notice of such meetings need not be given.

Section 8. Regular Meetings. Regular meetings of the Trustees shall be
held at the principal office of the Trust or at any other place within the state
of California which has been designated by the Trustees' Regulations or from
time to time by resolution of the Trustees or by written consent of all of the
Trustees on the first Wednesday of each calendar month at 8:30 a.m., and notice
of such regular meetings of the Trustees in hereby dispensed with.

Section 9. Special Meetings. Special meetings of the Trustees may be
called at any time by the President. The President also shall call a special
meeting at any time upon the written request of two (2) Trustees. Written notice
a copy thereof of the time and place of a special meeting shall be given to each
Trustee, either personally or by sending a copy thereof by mail or by telegraph,
charges prepaid, to his address appearing on the books of the Trust or
theretofore given by him to the Trust for the purpose of notice. In case of
personal service, such notice shall be so delivered at least twenty-four (24)
hours prior to the time fixed for the meeting. If telegraphed, it shall be
delivered to the telegraph company at least forty-eight (48) hours prior to the
time fixed for the holding of the meeting. Notice may also be given by
telephone. If notice is not so given by the Secretary, it may be given by the
President or the Trustees requesting the meeting may issue the call and give the
notice. Failure to give written notice shall not invalidate action taken at
meetings.

Section 10. Adjourned Meetings. A quorum of the Trustees may adjourn
any Trustees' meeting to meet again at a stated day and hour. In the absence of
a quorum, a majority of the Trustees present may adjourn from time to time to
meet again at a stated day and hour prior to the time fixed for the next regular
meeting of the Trustees. The motion for adjournment shall be lodged with the
records of the Trust. Notice of the time and place of an adjourned meeting need
not be given to any Trustee if the time and place is fixed at the meeting
adjourned.

Section 11. Waiver of Notice. The transactions of any meeting of the
Trustees, however called and noticed or wherever held, shall be as valid as
though conducted at a meeting duly held after regular call and notice if a
quorum is present, and if either before or after the meeting each of the
Trustees not present signs a written waiver of notice or consent to the holding
of such meeting or an approval of the minutes thereof. All such waivers,
consents, or approvals shall be lodged with the Trust records or made a part of
the minutes of the meeting.

3
<PAGE>

Section 12. Action Without Meeting. Any action required or permitted to
be taken by the Trustees may be taken by the Trustees without a meeting, if a
majority of the Trustees shall individually or collectively consent in writing
to such action. Such written consent or consents shall be lodged with the
records of the Trust. Such action by written consent shall have the same force
and effect as a unanimous vote of such Trustees.

Section 13. Powers and Duties. The powers and duties of the Trustees, in
addition to the powers and duties set forth in the Declaration, are:

(a) Selection and Removal of Officers, Agents, and Employees.
To select all the other officers, agents, and employees of the Trust, to
remove them at pleasure, either with or without cause, to prescribe for
them duties consistent with the Declaration and the Trustees' Regulations,
and to fix their compensation.

(b) Authorization of Signatures. From time to time to designate
the person or persons authorized to sign or endorse checks, drafts, or
other orders for the payment of money, issued in the name of or payable to
the Trust; and to execute contracts and legal documents on behalf of the
Trust.

(c) Fixing Principal Office and Place of Meetings. From time
to time to change the location of the principal office of the Trust and
from time to time to designate any place within or without the state of
California as the place at which meetings of the Trustees or of the
Shareholders shall be held.

(d) Committees. To appoint an executive committee and other
committees, and to delegate to the executive committee any of the powers
and authority of the Trustees over the business and affairs of the
Trustees, except the power to declare dividends and to adopt, amend, or
repeal Trustees' Regulations. The Trustees shall have the power to
prescribe the manner in which proceedings of the executive committee and
other committees shall be conducted. The executive committee and the audit
committee shall be composed of three (3) or more Trustees.

(e) General Powers. Generally to exercise such other powers as
are usually vested in directors of corporations organized under the laws of
the state of California.

Section 14. Trustees' Compensation. Trustees who are not officers of
the Trust shall receive reasonable compensation for their services as determined
by the Trustees from time to time, provided that such compensation shall
initially be up to $350 for each Trustees' meeting or Executive meeting actually
attended, which meeting shall be held not less frequently than quarterly.
Trustees who are not officers of the Trust shall, in addition, be reimbursed for
expenses incurred in attending meetings of the Trustees.

4
<PAGE>

ARTICLE III

Advisory Trustees

Section 1. Appointment. The Trustees may at their option appoint not
more then fifteen (15) individuals to serve as Advisory Trustees for the Trust,
whose duties will be to review the Trust operations, investments, and policies
and make recommendations in connection therewith to the Trustees. The Trustees,
however, shall not be bound by the recommendations of the Advisory Trustees, and
the Advisory Trustees shall have no power or authority to, and no action taken
by them shall, bind or restrict the Trustees of the Trust.

Section 2. Election and Term of Office. The Advisory Trustees shall be
elected annually by the Trustees at their organization meeting. Each Advisory
Trustee shall hold office until his death, resignation, removal, or until his
successor shall be elected and qualified.

Section 3. Compensation to Advisory Trustees. The amount of compensation
to be paid to Advisory Trustees shall be fixed from time to time by the Trustees
provided that such compensation shall initially be the sum of $150.00 for each
monthly meeting attended by an Advisory Trustee, and, when the initial public
offering is substantially subscribed, may be increased up to $350.00 for each
monthly meeting. In addition to the foregoing, the Trustees may authorize the
payment of expenses incurred by an Advisory Trustee to attend any meeting and
may also authorize the payment of additional compensation to any Advisory
Trustee for services actually rendered the Trust in addition to attending
meetings.

Section 4. Limitation of Liability. No Advisory Trustee shall be liable
to the Trust, the Trustees hereunder or the Shareholders in any amount except
for disclosure or use of confidential information obtained by such Advisory
Trustee in connection with his duties as an Advisory Trustee.

ARTICLE IV

Shareholders

Section 1. Quorum. The presence in person or by proxy of persons
entitled to vote a majority of the voting shares at any meeting of Shareholders
shall constitute a quorum. The Shareholders present at a duly called or held
meeting at which a quorum is present may continue to do business until
adjournment notwithstanding the withdrawal of enough Shareholders to leave less
than a quorum.

Section 2. Place of Meeting. Meetings of the Shareholders shall he held
at the principal office of the Trust or at such place within or without the
state of California as is designated by the Trustees or by the written consent
of all Shareholders entitled to vote thereat, given either before or after the
meeting and filed with the Secretary of the Trust.

5
<PAGE>

Section 3. Annual Meeting. A regular annual meeting of the Shareholders
shall be held during May at a time, place and on a date selected by the Trustees
after notice is given to shareholders in accordance with federal securities
laws.

Section 4. Special Meeting. Special meetings of the Shareholders may be
held at any time for any purpose or purposes. Such special meetings may be
called at any time by the President or by the Trustees or by any two or more
Trustees, or by one or more Shareholders holding not less than 66-2/3% of the
outstanding Shares of the Trust.

Section 5. Adjourned Meetings. Any meetings of Shareholders, whether or
not a quorum is present, may be adjourned from day to day or from time to time
by the vote of a majority of the Shares, the holders of which are either present
at the meeting or represented by proxy. The motion for adjournment shall be
lodged with the records of the Trust.

Section 6. Notice of Regular or Special Meetings. Written notice
specifying the place, day, and hour of any regular or special meeting, the
general nature of the business to be transacted thereat, and all other matters
required by law, shall be given to each Shareholder of record entitled to vote,
either personally or by sending a copy thereof by mail or telegraph, charges
prepaid, to his address appearing on the books of the Trust or theretofore given
by him to the Trust for the purpose of notice or, if no address appears or has
been given, addressed to the place where the principal office of the Trust is
situated. It shall be the duty of the Secretary to give notice of each Annual
Meeting of the Shareholders at least ten (10) days and not more then sixty (60)
days before the date on which it is to be held. If notice is not so given by the
Secretary, it may be given by any other officer not less than seven (7) days
before such date. Whenever an officer has been duly requested to call a special
meeting of Shareholders, it shall be his duty to fix the date and the hour
thereof, which date shall be not less then ten (10) days and not more than sixty
(60) days after the receipt of such request, if the request has been delivered
in person, or after the date of mailing the request, as the case may be, and to
give notice of such special meeting not less than seven (7) days before the date
on which the meeting is to be held. If the date of such special meeting is not
so fixed and notice thereof given within seven (7) days after the date of
delivery or the date of mailing the request, the date and hour of such meeting
may be fixed by the person or persons calling or requesting the meeting and
notice thereof shall be given by such person or persons not less than seven (7)
nor more than sixty (60) days before the date on which the meeting is to be
held.

Section 7. Notice of Adjourned Meetings. It shall not be necessary to
give any notice of the time and place of any adjourned meeting or of the
business to be transacted thereat other than by announcement at the meeting at
which such adjournment is taken, except that when a meeting is adjourned for
thirty (30) days or more, notice of the adjourned meeting shall be given as in
the case of an original meeting.

Section 8. Proxies. The appointment of a proxy or proxies shall be made
by an instrument in writing executed by the Shareholder or his duly authorized
agent and filed with Secretary of the Trust. No proxy shall be valid after the
expiration of eleven (11) months from the date of its execution unless the
Shareholder executing it specified therein the length of time for which it was
to continue in force, which in no case shall exceed seven (7) years from the
date of its

6
<PAGE>

execution. At a meeting of Shareholders all questions concerning the
qualification of voters, the validity of proxies, and the acceptance or
rejection of votes shall be decided by the Secretary of the meeting unless
inspectors of election are appointed pursuant to Section 11 of this Article IV,
in which event such inspectors shall pass upon all questions and shall have all
other duties specified in said section. "Mailgram" or "Datagram" or other
telegraphed proxies shall be legal proxies in the event that the notice to
shareholders soliciting proxies shall so state.

Section 9. Consent of Absentees. The transactions of any meeting of
Shareholders, either annual, special, or adjourned, however called and noticed,
shall, if a quorum is present, be as valid as though conducted at a meeting duly
held after the regular call and notice and, if either before or after the
meeting each Shareholder entitled to vote, not present in person or by proxy,
signs a written waiver of notice of a consent to the holding of such meeting or
an approval of the minutes thereof. All such waivers, consents, or approvals
shall be lodged with the Trust records or made a part of the minutes of the
meeting.

Section 10. Voting Rights. If no future date is fixed for the
determination of the Shareholders entitled to vote at any meeting of
Shareholders, only persons in whose names Shares entitled to vote stand on the
share records of the Trust on the day of any meeting of Shareholders shall be
entitled to vote at such meeting.

Section 11. Inspectors of Election. In advance of any meeting of
Shareholders the Trustees may appoint inspectors of election to act at the
meeting or any adjournment thereof. If inspectors of election are not so
appointed, the Chairman of any meeting of Shareholders may and, on the request
of any Shareholder or his proxy, shall appoint inspectors of election at the
meeting. The number of inspectors shall be either one or three. If appointed at
the meeting on the request of one or more Shareholders or proxies, a majority of
Shares present shall determine whether one or three inspectors are to be
appointed. In case any person appointed as inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment made by the Trustees in
advance of the convening of the meeting or at the meeting by the Person acting
as Chairman. The inspectors of election shall determine the number of Shares
outstanding, the Shares represented at the meeting, the existence of a quorum,
the authenticity, validity, and effect of proxies, receive votes, ballots, or
consents, hear and determine all challenges and questions in any way arising in
connection with the right to vote, count, and tabulate all votes or consents,
determine the results, and do such acts as may be proper to conduct the election
or vote with fairness to all Shareholders. If there are three inspectors of
election, the decision, act, or certificate of a majority is effective in all
respects as the decision, act, or certificate of all. On request of the Chairman
of the meeting or of any Shareholder or his proxy, the inspector shall make a
report in writing of any challenge or question or matter determined by them and
execute a certificate of any facts found by them.

Section 12. Excess Shares. No person shall at any time be or become the
owner of more then 9.8% of the outstanding shares of the Trust. Any shares held
in excess of this limit shall be "Excess Shares" which shall not be entitled to
voting rights or dividends (until they cease to become Excess Shares) and are
subject to redemption by the Trustees. This provision can be waived or suspended
at any time by the formal action of the Trustees acting in accordance with these
Regulations.

7
<PAGE>

Section 13. Action Without Meeting.

(a) Action by Written Consent. Any action which is required to be
or may be taken at any annual or special meeting of Shareholders of the
Trust may be taken without a meeting, without prior notice and without a
vote, if consents in writing, setting forth the action so taken, shall have
been signed by the holders of outstanding Shares having not less than the
minimum number of votes that would be necessary to authorize or to take
such action at a meeting at which all Shares entitled to vote thereon were
present and voted; provided, however, that prompt notice of the taking of
the action without a meeting and by less than unanimous written consent
shall be given to those Shareholders who have not consented in writing.

(b) Record Date. The record date for determining Shareholders
entitled to express consent to action in writing without a meeting shall be
fixed by the Board of Trustees of the Trust (the "Board"). Any Shareholder
seeking to have the Shareholders authorize or take action by written
consent without a meeting shall, by written notice, request the Board of
Trustees to fix a record date. The Board shall, upon receipt of such a
request, fix the record date an the 15th day following receipt of the
request or such later date as may be specified by such Shareholder. If the
record date falls on a Saturday, Sunday or legal holiday, the record date
shall be the day next following which is not a Saturday, Sunday or legal
holiday.

(c) Date of Consent. The date for determining if an action has
been consented to by the holder or holders of Shares having the requisite
voting power to authorize or take the action specified therein (the
"Consent Date") shall be the close of business an the 31st day after the
later of (x) the record date fixed pursuant to paragraph (b) of this
Section 13 and (y) the date on which materials soliciting consents are
mailed to Shareholders if such materials are required to be mailed under
applicable law. If the Consent Date falls on a Saturday, Sunday or legal
holiday, the Consent Date shall be the day next following which is not a
Saturday, Sunday or legal holiday. On or prior to the Consent Date,
consents may be revoked by written notice (i) to the Trust, (ii) to the
Shareholder or Shareholders soliciting consents or soliciting revocations
in opposition to action by consent proposed by the Trust (the "Soliciting
Shareholders"), or (iii) to a proxy solicitor or other agent designated by
the Trust or the Soliciting Shareholder(s).

(d) Procedures. In the event of the delivery to the Trust of a
written consent or consents purporting to authorize or take action and/or
related revocations (each such written consent and related revocation being
referred to in this Section 13 as a "Consent"), the Secretary of the Trust
shall provide for the safekeeping of such consent and, as soon as
practicable after the Consent Date, shall conduct such reasonable
investigation as he deems necessary or appropriate for the purpose of
ascertaining the validity of such Consent and all matters incident thereto,
including, without limitation, whether the holders of Shares having the
requisite voting power to authorize or take the action specified in the
Consent have given consent; provided, however, that if the action to which
the Consent relates is the removal or

8
<PAGE>

replacement of one or more members of the Board, the Secretary of the Trust
shall designate two persons, who may not be members of the Board or
otherwise affiliated with the Trust, or a firm of nationally recognized
independent inspectors of election, to serve an Inspectors with respect to
such Consent and such Inspectors shall discharge the functions of the
Secretary of the Trust under this paragraph (d). If after such
investigation the Secretary or the Inspectors (as the case may be) shall
determine that the Consent is valid, that fact shall be certified on the
records of the Trust kept for the purpose of recording the proceedings of
meeting of Shareholders, and the Consent shall be filed in such records at
which time the Consent shall become effective as Shareholder action as of
the fifth business day following such certification.

ARTICLE V

Miscellaneous

Section 1. Record Dates and Closing of Transfer Books. From time to time
the Trustees may fix a future date, not exceeding sixty (60) days preceding (a)
the date of any meeting of Shareholders or (b) the date fixed for the payment of
any dividend or distribution or for the allotment of rights or (c) when any
change or conversion or exchange of Shares is to go into effect, as the record
date for the determination of the Shareholders entitled to notice of and to vote
at any such meeting or to receive any such dividend or distribution or any
allotment of rights or to exercise the rights with respect to any such change,
conversion or exchange of Shares. If a time is so fixed, only Shareholders of
record on the date so fixed shall be entitled to notice of and to vote at such
meeting or to receive such dividend or distribution or allotment of rights or to
exercise such rights, as the case may be, notwithstanding any transfer of Shares
on the books of the Trust after the record date so fixed. The Trustees may close
the books of the Trust against transfers of Shares during the whole or any part
of the period between the record date and the date so fixed for the meeting,
payment, distribution, allotment, change, or exercise of rights.

Section 2. Inspection of Trust Records. The share register or duplicate
share register, the books of account, and the minutes of the proceedings of the
Shareholders and Trustees shall be open to inspection upon the written demand of
any Shareholder at any reasonable time and for a purpose reasonably related to
his interests as a Shareholder and shall be exhibited at any time when required
by the demand of ten percent (10%) or more of the Shares represented at any
Shareholders' meeting. Such inspection may be made in person or by an agent or
attorney and shall include the right to make extracts. Demand of inspection
other than at a Shareholders' meeting shall be made in writing to the President,
Secretary, or Assistant Secretary of the Trust.

Section 3. Inspection of Trustees' Regulations. The Trustees shall keep
at the principal office for the transaction of business of the Trust the
original or a copy of the Trustees' Regulations as amended to date, certified by
the Secretary, which Regulations shall be open to inspection by the Shareholders
at all reasonable times during office hours.

Section 4. Representation of Shares of Corporations. The President or
any Vice President and the Secretary or Assistant Secretary of the Trust, acting
either in person or by a proxy

9
<PAGE>

or proxies designated in a written instrument duly executed by said officers,
are authorized to vote, represent, and exercise on behalf of the Trust all
rights incident to any shares of any corporation standing in the name of the
Trust.

ARTICLE VI

Seal

The Trust shall elect to have a seal containing the words: "CONSOLIDATED
CAPITAL SPECIAL TRUST, a California business trust, organized August 27, 1980,
CALIFORNIA." The application of the seal is not necessary to make documents
binding on the Trust.

ARTICLE VII

Amendments

These Trustees' Regulations may be amended or repealed, or new or
additional Trustees' Regulations may be adopted by the vote or written consent
of the Trustees, but the Trustees may not decrease the authorized number of
Trustees below three (3) or increase the authorized number of Trustees above
fifteen (15) without the vote or written consent of Shareholders entitled to
exercise a majority of the voting power of the Trust. The power hereby delegated
may be revoked by the vote or written consent of Shareholders entitled to vote
two-thirds of the outstanding shares of the Trust.

ARTICLE VIII

Definitions

All terms defined in the Declaration of Trust dated August 27, 1980 as
amended to date, shall have the same meaning when used in these Trustees'
Regulations.

<PAGE>

EXHIBIT 3.7

FORM OF
ARTICLES OF INCORPORATION

The name of this corporation is Continental Mortgage and Equity
Corporation.

II.

Continental Mortgage and Equity Trust, an existing unincorporated
business association, is being incorporated by the filing of these articles of
incorporation.

III.

The purpose of the corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporation Code.

IV.

The name and address in the State of California of this corporation's
initial agent for service of process is:

CT Corporation System, Attn: Tiffany Gonzales
915 L Street, Suite 1440
Sacramento, California 95814

This corporation is authorized to issue only one class of shares of
stock; and the total number of shares which this corporation is authorized to
issue is ten million (10,000,000).

-----------------------------------
Randall M. Paulson, President

-----------------------------------
Thomas A. Holland, Secretary

<PAGE>

EXHIBIT 3.8

FORM OF
CONTINENTAL MORTGAGE AND EQUITY
CORPORATION

(a California corporation formed by the incorporation of
Continental Mortgage and Equity Trust
pursuant to Section 200.5 of the California General Corporate Law)

BYLAWS
<PAGE>

BYLAWS OF

CONTINENTAL MORTGAGE AND EQUITY CORPORATION

(a California corporation formed by the incorporation of
Continental Mortgage and Equity Trust
pursuant to Section 200.5 of the California General Corporate Law)

TABLE OF CONTENTS

Page
----
ARTICLE I - CORPORATE OFFICES.............................................. 1

1.1 PRINCIPAL OFFICE............................................... 1
1.2 OTHER OFFICES.................................................. 1

ARTICLE II - MEETINGS OF SHAREHOLDERS...................................... 1

2.1 PLACE OF MEETINGS.............................................. 1
2.2 ANNUAL MEETING................................................. 1
2.3 SPECIAL MEETING................................................ 1
2.4 NOTICE OF SHAREHOLDERS' MEETINGS............................... 2
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE................... 2
2.6 QUORUM......................................................... 3
2.7 ADJOURNED MEETING; NOTICE...................................... 3
2.8 VOTING......................................................... 3
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT.............. 4
2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING........ 4
2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS.... 5
2.12 PROXIES........................................................ 5
2.13 INSPECTORS OF ELECTION......................................... 5
2.14 MERGER VOTE.................................................... 6

ARTICLE III - DIRECTORS.................................................... 6

3.1 POWERS......................................................... 6
3.2 NUMBER OF DIRECTORS............................................ 6
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS....................... 7
3.4 REMOVAL........................................................ 7
3.5 RESIGNATION AND VACANCIES...................................... 7
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE....................... 8
3.7 REGULAR MEETINGS............................................... 8
3.8 SPECIAL MEETINGS; NOTICE....................................... 8
3.9 QUORUM......................................................... 8
3.10 WAIVER OF NOTICE............................................... 9
3.11 ADJOURNMENT.................................................... 9
3.12 NOTICE OF ADJOURNMENT.......................................... 9
3.13 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING.............. 9
3.14 FEES AND COMPENSATION OF DIRECTORS............................. 9

i
<PAGE>

ARTICLE IV - COMMITTEES.................................................... 9

4.1 COMMITTEES OF DIRECTORS........................................ 9
4.2 MEETINGS AND ACTION OF COMMITTEES.............................. 10

ARTICLE V - OFFICERS....................................................... 10

5.1 OFFICERS....................................................... 10
5.2 APPOINTMENT OF OFFICERS........................................ 10
5.3 SUBORDINATE OFFICERS........................................... 11
5.4 REMOVAL AND RESIGNATION OF OFFICERS............................ 11
5.5 VACANCIES IN OFFICES........................................... 11
5.6 CHAIRMAN OF THE BOARD.......................................... 11
5.7 PRESIDENT...................................................... 11
5.8 VICE PRESIDENTS................................................ 12
5.9 SECRETARY...................................................... 12
5.10 CHIEF FINANCIAL OFFICER........................................ 12

ARTICLE VI - RECORDS AND REPORTS........................................... 13

6.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER................... 13
6.2 MAINTENANCE AND INSPECTION OF BYLAWS........................... 13
6.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS.......... 13
6.4 INSPECTION BY DIRECTORS........................................ 14
6.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER.......................... 14
6.6 FINANCIAL STATEMENTS........................................... 14
6.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS................. 15

ARTICLE VII - GENERAL MATTERS.............................................. 15

7.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING.......... 15
7.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS...................... 15
7.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED............. 15
7.4 CERTIFICATES FOR SHARES........................................ 15
7.5 LOST CERTIFICATES.............................................. 16
7.6 CONSTRUCTION; DEFINITIONS...................................... 16

ARTICLE VIII - AMENDMENTS.................................................. 16

8.1 AMENDMENT BY SHAREHOLDERS...................................... 16
8.2 AMENDMENT BY DIRECTORS......................................... 16
8.3 RECORD OF AMENDMENTS........................................... 16

ii
<PAGE>

BYLAWS

CONTINENTAL MORTGAGE AND EQUITY CORPORATION

(a California corporation formed by the incorporation of
Continental Mortgage and Equity Trust
pursuant to Section 200.5 of the California General Corporate Law)

ARTICLE I

CORPORATE OFFICES

1.1 PRINCIPAL OFFICE

The Board of Directors shall fix the location of the principal
executive office of the corporation at any place within or outside the State of
California. If the principal executive office is located outside California and
the corporation has one or more business offices in California, then the Board
of Directors shall fix and designate a principal business office in California.

1.2 OTHER OFFICES

The Board of Directors may at any time establish branch or subordinate
offices at any place or places.

ARTICLE II

MEETINGS OF SHAREHOLDERS

2.1 PLACE OF MEETINGS

Meetings of shareholders shall be held at any place within or outside
the State of California designated by the Board of Directors. In the absence of
any such designation, shareholders' meetings shall be held at the principal
executive office of the corporation or at any place consented to in writing by
all persons entitled to vote at such meeting, given before or after the meeting
and filed with the Secretary of the corporation.

2.2 ANNUAL MEETING

An annual meeting of shareholders shall be held each year on a date and
at a time designated by the Board of Directors. At that meeting, directors shall
be elected. Any other proper business may be transacted at the annual meeting of
shareholders.

2.3 SPECIAL MEETINGS

Special meetings of the shareholders may be called at any time, subject
to the provisions of Sections 2.4 and 2.5 of these Bylaws, by the Board of
Directors, the Chairman of the Board, the President or the holders of shares
entitled to cast not less than ten percent (10%) of the votes at that meeting.

If a special meeting is called by anyone other than the Board of
Directors or the President or the Chairman of the Board, then the request shall
be in writing, specifying the time of such meeting and the general nature of the
business proposed to be transacted, and shall be delivered personally or sent by
registered mail or by

<PAGE>

other written communication to the Chairman of the Board, the President, any
Vice President or the Secretary of the corporation. The officer receiving the
request forthwith shall cause notice to be given to the shareholders entitled to
vote, in accordance with the provisions of Sections 2.4 and 2.5 of these Bylaws,
that a meeting will be held at the time requested by the person or persons
calling the meeting, so long as that time is not less than thirty-five (35) nor
more than sixty (60) days after the receipt of the request. If the notice is not
given within twenty (20) days after receipt of the request, then the person or
persons requesting the meeting may give the notice. Nothing contained in this
paragraph of this Section 2.3 shall be construed as limiting, fixing or
affecting the time when a meeting of shareholders called by action of the Board
of Directors may be held.

2.4 NOTICE OF SHAREHOLDERS' MEETINGS

All notices of meetings of shareholders shall be sent or otherwise
given in accordance with Section 2.5 of these Bylaws not less than ten (10) (or,
if sent by third-class mail pursuant to Section 2.5 of these Bylaws, not less
than thirty (30)) nor more than sixty (60) days before the date of the meeting
to each shareholder entitled to vote thereat. Such notice shall state the place,
date, and hour of the meeting and (i) in the case of a special meeting, the
general nature of the business to be transacted, and no business other than that
specified in the notice may be transacted, or (ii) in the case of the annual
meeting, those matters which the Board of Directors, at the time of the mailing
of the notice, intends to present for action by the shareholders, but, subject
to the provisions of the next paragraph of this Section 2.4, any proper matter
may be presented at the meeting for such action. The notice of any meeting at
which Directors are to be elected shall include the names of nominees intended
at the time of the notice to be presented by the Board for election.

If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the California Corporations Code (the
"Code"), (ii) an amendment of the Articles of Incorporation, pursuant to Section
902 of the Code, (iii) a reorganization of the corporation, pursuant to Section
1201 of the Code, (iv) a voluntary dissolution of the corporation, pursuant to
Section 1900 of the Code, or (v) a distribution in dissolution other than in
accordance with the rights of any outstanding preferred shares, pursuant to
Section 2007 of the Code, then the notice shall also state the general nature of
that proposal.

2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE

Notice of a shareholders' meeting shall be given either personally or
by first-class mail, or, if the corporation has outstanding shares held of
record by five hundred (500) or more persons (determined as provided in Section
605 of the Code) on the record date for the shareholders' meeting, notice may be
sent by third-class mail, or other means of written communication, addressed to
the shareholder at the address of the shareholder appearing on the books of the
corporation or given by the shareholder to the corporation for the purpose of
notice; or if no such address appears or is given, at the place where the
principal executive office of the corporation is located or by publication at
least once in a newspaper of general circulation in the county in which the
principal executive office is located. The notice shall be deemed to have been
given at the time when delivered personally or deposited in the mail or sent by
other means of written communication.

If any notice (or any report referenced in Article VI of these Bylaws)
addressed to a shareholder at the address of such shareholder appearing on the
books of the corporation is returned to the corporation by the United States
Postal Service marked to indicate that the United States Postal Service is
unable to deliver the notice to the shareholder at that address, all future
notices or reports shall be deemed to have been duly given without further
mailing if the same shall be available to the shareholder upon written demand of
the shareholder at the principal executive office of the corporation for a
period of one (1) year from the date of the giving of the notice.

2
<PAGE>

An affidavit of mailing of any notice or report in accordance with the
provisions of this Section 2.5, executed by the Secretary, Assistant Secretary
or any transfer agent, shall be prima facie evidence of the giving of the notice
or report.

2.6 QUORUM

Unless otherwise provided in the Articles of Incorporation of the
corporation, a majority of the shares entitled to vote, represented in person or
by proxy, shall constitute a quorum at a meeting of the shareholders. The
shareholders present at a duly called or held meeting at which a quorum is
present may continue to transact business until adjournment notwithstanding the
withdrawal of enough shareholders to leave less than a quorum, if any action
taken (other than adjournment) is approved by at least a majority of the shares
required to constitute a quorum.

In the absence of a quorum, any meeting of shareholders may be
adjourned from time to time by the vote of a majority of the shares represented
either in person or by proxy, but no other business may be transacted, except as
provided in the last sentence of the preceding paragraph.

2.7 ADJOURNED MEETING; NOTICE

Any shareholders' meeting, annual or special, whether or not a quorum
is present, may be adjourned from time to time by the vote of the majority of
the shares represented at that meeting, either in person or by proxy.

When any meeting of shareholders, either annual or special, is
adjourned to another time or place, notice need not be given of the adjourned
meeting if its time and place are announced at the meeting at which the
adjournment is taken. However, if the adjournment is for more than forty-five
(45) days from the date set for the original meeting or if a new record date for
the adjourned meeting is fixed, a notice of the adjourned meeting shall be given
to each shareholder of record entitled to vote at the adjourned meeting in
accordance with the provisions of Sections 2.4 and 2.5 of these Bylaws. At any
adjourned meeting the corporation may transact any business which might have
been transacted at the original meeting.

2.8 VOTING

The shareholders entitled to vote at any meeting of shareholders shall
be determined in accordance with the provisions of Section 2.11 of these Bylaws,
subject to the provisions of Sections 702 through 704 of the Code (relating to
voting shares held by a fiduciary, in the name of a corporation, or in joint
ownership).

Elections for directors and voting on any other matter at a
shareholders' meeting need not be by ballot unless a shareholder demands
election by ballot at the meeting and before the voting begins.

Except as provided in the last paragraph of this Section 2.8, or as may
be otherwise provided in the Articles of Incorporation, each outstanding share,
regardless of class, shall be entitled to one vote on each matter submitted to a
vote of the shareholders. Any holder of shares entitled to vote on any matter
may vote part of the shares in favor of the proposal and refrain from voting the
remaining shares or may vote them against the proposal other than elections to
office, but, if the shareholder fails to specify the number of shares such
shareholder is voting affirmatively, it will be conclusively presumed that the
shareholder's approving vote is with respect to all shares which the shareholder
is entitled to vote.

The affirmative vote of the majority of the shares represented and
voting at a duly held meeting at which a quorum is present (which shares voting
affirmatively also constitute at least a majority of the required quorum)

3
<PAGE>

shall be the act of the shareholders, unless the vote of a greater number or
voting by classes is required by the Code or by the Articles of Incorporation.

2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT

The transactions of any meeting of shareholders, either annual or
special, however called and noticed, and wherever held, are as valid as though
they had been taken at a meeting duly held after regular call and notice, if a
quorum be present either in person or by proxy, and if, either before or after
the meeting, each of the persons entitled to vote, not present in person or by
proxy, signs a written waiver of notice or a consent to the holding of the
meeting or an approval of the minutes thereof. Neither the business to be
transacted at nor the purpose of any annual or special meeting of shareholders
need be specified in any written waiver of notice or consent to the holding of
the meeting or approval of the minutes thereof, except that if action is taken
or proposed to be taken for approval of any of those matters specified in the
second paragraph of Section 2.4 of these Bylaws, the waiver of notice or consent
or approval shall state the general nature of the proposal. All such waivers,
consents, and approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.

Attendance of a person at a meeting shall constitute a waiver of notice
of and presence at that meeting, except when the person objects, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened and except that attendance at a meeting is
not a waiver of any right to object to the consideration of matters required by
the Code to be included in the notice of such meeting but not so included, if
such objection is expressly made at the meeting.

2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING

Any action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting and without prior notice, if a
consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding shares having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted.

Directors may not be elected by written consent except by unanimous
written consent of all shares entitled to vote for the election of directors.
However, a director may be elected at any time to fill any vacancy on the Board
of Directors, provided that it was not created by removal of a director and that
it has not been filled by the directors, by the written consent of the holders
of a majority of the outstanding shares entitled to vote for the election of
directors.

All such consents shall be maintained in the corporate records. Any
shareholder giving a written consent, or the shareholder's proxy holders, or a
transferee of the shares, or a personal representative of the shareholder, or
their respective proxy holders, may revoke the consent by a writing received by
the Secretary of the corporation before written consents of the number of shares
required to authorize the proposed action have been filed with the Secretary.

If the consents of all shareholders entitled to vote have not been
solicited in writing, the Secretary shall give prompt notice of any corporate
action approved by the shareholders without a meeting by less than unanimous
written consent to those shareholders entitled to vote who have not consented in
writing. Such notice shall be given in the manner specified in Section 2.5 of
these Bylaws. In the case of approval of (i) a contract or transaction in which
a director has a direct or indirect financial interest, pursuant to Section 310
of the Code, (ii) indemnification of a corporate "agent," pursuant to Section
317 of the Code, (iii) a reorganization of the corporation, pursuant to Section
1201 of the Code, and (iv) a distribution in dissolution other than in
accordance with the rights of outstanding preferred shares, pursuant to Section
2007 of the Code, the notice shall be given at least ten (10) days before the
consummation of any action authorized by that approval, unless the consents of
all shareholders entitled to vote have been solicited in writing.

4
<PAGE>

2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS

In order that the corporation may determine the shareholders entitled
to notice of any meeting or to vote, the Board of Directors may fix, in advance,
a record date, which shall not be more than sixty (60) days nor less than ten
(10) days prior to the date of such meeting nor more than sixty (60) days before
any other action. Shareholders at the close of business on the record date are
entitled to notice and to vote, as the case may be, notwithstanding any transfer
of any shares on the books of the corporation after the record date, except as
otherwise provided in the Articles of Incorporation or the Code.

A determination of shareholders of record entitled to notice of or to
vote at a meeting of shareholders shall apply to any adjournment of the meeting
unless the Board of Directors fixes a new record date for the adjourned meeting,
but the Board of Directors shall fix a new record date if the meeting is
adjourned for more than forty-five (45) days from the date set for the original
meeting.

If the Board of Directors does not so fix a record date:

(a) The record date for determining shareholders entitled to
notice of or to vote at a meeting of shareholders shall be at the close of
business on the business day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the business day next preceding
the day on which the meeting is held.

(b) The record date for determining shareholders entitled to
give consent to corporate action in writing without a meeting, (i) when no prior
action by the Board has been taken, shall be the day on which the first written
consent is given, or (ii) when prior action by the Board has been taken, shall
be at the close of business on the day on which the Board adopts the resolution
relating thereto, or the sixtieth (60th) day prior to the date of such other
action, whichever is later.

The record date for any other purpose shall be as provided in Section
7.1 of these Bylaws.

2.12 PROXIES

Every person entitled to vote for directors, or on any other matter,
shall have the right to do so either in person or by one or more agents
authorized by a written proxy signed by the person and filed with the Secretary
of the corporation. A proxy shall be deemed signed if the shareholder's name or
other authorization is placed on the proxy (whether by manual signature,
typewriting, telegraphic or electronic transmission or otherwise) by the
shareholder or the shareholder's attorney-in-fact. A validly executed proxy
which does not state that it is irrevocable shall continue in full force and
effect unless (i) the person who executed the proxy revokes it prior to the time
of voting by delivering a writing to the corporation stating that the proxy is
revoked or by executing a subsequent proxy and presenting it to the meeting or
by attendance at such meeting and voting in person, or (ii) written notice of
the death or incapacity of the maker of that proxy is received by the
corporation before the vote pursuant to that proxy is counted; provided,
however, that no proxy shall be valid after the expiration of eleven (11) months
from the date thereof, unless otherwise provided in the proxy. The dates
contained on the forms of proxy presumptively determine the order of execution,
regardless of the postmark dates on the envelopes in which they are mailed. The
revocability of a proxy that states on its face that it is irrevocable shall be
governed by the provisions of Sections 705(e) and 705(f) of the Code.

2.13 INSPECTORS OF ELECTION

In advance of any meeting of shareholders, the Board of Directors may
appoint inspectors of election to act at the meeting and any adjournment
thereof. If inspectors of election are not so appointed or designated or if

5
<PAGE>

any persons so appointed fail to appear or refuse to act, then the Chairman of
the meeting may, and on the request of any shareholder or a shareholder's proxy
shall, appoint inspectors of election (or persons to replace those who so fail
to appear) at the meeting. The number of inspectors shall be either one (1) or
three (3). If appointed at a meeting on the request of one (1) or more
shareholders or proxies, the majority of shares represented in person or by
proxy shall determine whether one (1) or three (3) inspectors are to be
appointed.

The inspectors of election shall determine the number of shares
outstanding and the voting power of each, the shares represented at the meeting,
the existence of a quorum, and the authenticity, validity, and effect of
proxies, receive votes, ballots or consents, hear and determine all challenges
and questions in any way arising in connection with the right to vote, count and
tabulate all votes or consents, determine when the polls shall close, determine
the result and do any other acts that may be proper to conduct the election or
vote with fairness to all shareholders.

2.14 MERGER VOTE

Notwithstanding anything to the contrary in this Article II, the
provisions of this Article II, including but not limited to any notice
requirements, shall not apply to any vote, whether actual, deemed or otherwise,
of the shareholders of the corporation (or the holders of the beneficial
interests in Continental Mortgage and Equity Trust, (the "Trust") the
predecessor to the corporation) in connection with the merger of this
corporation with and into Transcontinental Realty Investors, Inc. ("TCI"),
pursuant to that certain Agreement and Plan of Merger dated as of November
18,1998 between the Trust and TCI.

ARTICLE III

DIRECTORS

3.1 POWERS

Subject to the provisions of the Code and any limitations in the
Articles of Incorporation and these Bylaws relating to action required to be
approved by the shareholders or by the outstanding shares, the business and
affairs of the corporation shall be managed and all corporate powers shall be
exercised by or under the direction of the Board of Directors. The Board may
delegate the management of the day-to-day operation of the business of the
corporation to a management company or other person provided that the business
and affairs of the corporation shall be managed and all corporate powers shall
be exercised under the ultimate direction of the Board.

3.2 NUMBER OF DIRECTORS

The authorized number of directors of the corporation shall be not less
than three (3) nor more than five (5) (which in no case shall be greater than
two times the stated minimum minus one), and the exact number of directors shall
be three (3) until changed, within the limits specified above, by a resolution
amending such exact number, duly adopted by the Board of Directors or by the
shareholders. The minimum and maximum number of directors may be changed, or a
definite number may be fixed without provision for an indefinite number, by a
duly adopted amendment to the Articles of Incorporation or by an amendment to
this Bylaw duly adopted by the vote or written consent of holders of a majority
of the outstanding shares entitled to vote; provided, however, that an amendment
reducing the fixed number or the minimum number of directors to a number less
than five (5) cannot be adopted if the votes cast against its adoption at a
meeting, or the shares not consenting in the case of an action by written
consent, are equal to more than sixteen and two-thirds percent (16-2/3%) of the
outstanding shares entitled to vote thereon.

6
<PAGE>

No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office expires.

3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS

At each annual meeting of shareholders, directors shall be elected to
hold office until the next annual meeting. Each director, including a director
elected to fill a vacancy, shall hold office until the expiration of the term
for which elected and until a successor has been elected and qualified, except
in the case of the death, resignation, or removal of such a director.

3.4 REMOVAL

The entire Board of Directors or any individual director may be removed
from office without cause by the affirmative vote of a majority of the
outstanding shares entitled to vote on such removal; provided, however, that
unless the entire Board is removed, no individual director may be removed when
the votes cast against such director's removal, or not consenting in writing to
such removal, would be sufficient to elect that director if voted cumulatively
at an election at which the same total number of votes cast were cast (or, if
such action is taken by written consent, all shares entitled to vote were voted)
and the entire number of directors authorized at the time of such director's
most recent election were then being elected.

3.5 RESIGNATION AND VACANCIES

Any director may resign effective upon giving oral or written notice to
the Chairman of the Board, the President, the Secretary or the Board of
Directors, unless the notice specifies a later time for the effectiveness of
such resignation. If the resignation of a director is effective at a future
time, the Board of Directors may elect a successor to take office when the
resignation becomes effective.

Vacancies on the Board of Directors may be filled by a majority of the
remaining directors, or if the number of directors then in office is less than a
quorum by (i) unanimous written consent of the directors then in office, (ii)
the affirmative vote of a majority of the directors then in office at a meeting
held pursuant to notice or waivers of notice, or (iii) a sole remaining
director; however, a vacancy created by the removal of a director by the vote or
written consent of the shareholders or by court order may be filled only by the
affirmative vote of a majority of the shares represented and voting at a duly
held meeting at which a quorum is present (which shares voting affirmatively
also constitute at least a majority of the required quorum), or by the unanimous
written consent of all shares entitled to vote thereon. Each director so elected
shall hold office until the next annual meeting of the shareholders and until a
successor has been elected and qualified, or until his or her death, resignation
or removal.

A vacancy or vacancies in the Board of Directors shall be deemed to
exist (i) in the event of the death, resignation or removal of any director,
(ii) if the Board of Directors by resolution declares vacant the office of a
director who has been declared of unsound mind by an order of court or convicted
of a felony, (iii) if the authorized number of directors is increased, or (iv)
if the shareholders fail, at any meeting of shareholders at which any director
or directors are elected, to elect the full authorized number of directors to be
elected at that meeting.

The shareholders may elect a director or directors at any time to fill
any vacancy or vacancies not filled by the directors, but any such election by
written consent, other than to fill a vacancy created by removal, shall require
the consent of the holders of a majority of the outstanding shares entitled to
vote thereon. A director may not be elected by written consent to fill a vacancy
created by removal except by unanimous consent of all shares entitled to vote
for the election of directors.

7
<PAGE>

3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE

Regular meetings of the Board of Directors may be held at any place
within or outside the State of California that has been designated from time to
time by resolution of the Board. In the absence of such a designation, regular
meetings shall be held at the principal executive office of the corporation.
Special meetings of the Board may be held at any place within or outside the
State of California that has been designated in the notice of the meeting or, if
not stated in the notice or if there is no notice, at the principal executive
office of the corporation.

Members of the Board may participate in a meeting through the use of
conference telephone or similar communications equipment, so long as all
directors participating in such meeting can hear one another. Participation in a
meeting pursuant to this paragraph constitutes presence in person at such
meeting.

3.7 REGULAR MEETINGS

Regular meetings of the Board of Directors may be held without notice
if the time and place of such meetings are fixed by the Board of Directors.

3.8 SPECIAL MEETINGS; NOTICE

Subject to the provisions of the following paragraph, special meetings
of the Board of Directors for any purpose or purposes may be called at any time
by the Chairman of the Board, the President, any Vice President, the Secretary
or any two (2) directors.

Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail,
telegram, charges prepaid, or by telecopier, addressed to each director at that
director's address as it is shown on the records of the corporation. If the
notice is mailed, it shall be deposited in the United States mail at least four
(4) days before the time of the holding of the meeting. If the notice is
delivered personally or by telephone or by telecopier or telegram, it shall be
delivered personally or by telephone or by telecopier or to the telegraph
company at least forty-eight (48) hours before the time of the holding of the
meeting. Any oral notice given personally or by telephone may be communicated
either to the director or to a person at the office of the director who the
person giving the notice has reason to believe will promptly communicate it to
the director. The notice need not specify the purpose of the meeting.

3.9 QUORUM

A majority of the authorized number of directors shall constitute a
quorum for the transaction of business, except to adjourn as provided in Section
3.11 of these Bylaws. Every act or decision done or made by a majority of the
directors present at a meeting duly held at which a quorum is present is the act
of the Board of Directors, subject to the provisions of Section 310 of the Code
(as to approval of contracts or transactions in which a director has a direct or
indirect material financial interest), Section 311 of the Code (as to
appointment of committees), Section 317(e) of the Code (as to indemnification of
directors), the Articles of Incorporation, and other applicable law.

A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for such
meeting.

8
<PAGE>

3.10 WAIVER OF NOTICE

Notice of a meeting need not be given to any director who signs a
waiver of notice or a consent to holding the meeting or an approval of the
minutes thereof, whether before or after the meeting, or who attends the meeting
without protesting, prior thereto or at its commencement, the lack of notice to
such director. All such waivers, consents, and approvals shall be filed with the
corporate records or made a part of the minutes of the meeting. A waiver of
notice need not specify the purpose of any regular or special meeting of the
Board of Directors.

3.11 ADJOURNMENT

A majority of the directors present, whether or not a quorum is
present, may adjourn any meeting to another time and place.

3.12 NOTICE OF ADJOURNMENT

If the meeting is adjourned for more than twenty-four (24) hours,
notice of any adjournment to another time and place shall be given prior to the
time of the adjourned meeting to the directors who were not present at the time
of the adjournment.

3.13 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING

Any action required or permitted to be taken by the Board of Directors
may be taken without a meeting, if all members of the Board individually or
collectively consent in writing to such action. Such written consent or consents
shall be filed with the minutes of the proceedings of the Board. Such action by
written consent shall have the same force and effect as a unanimous vote of the
Board of Directors.

3.14 FEES AND COMPENSATION OF DIRECTORS

Directors and members of committees may receive such compensation, if
any, for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the Board of Directors. This Section 3.14 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.

ARTICLE IV

COMMITTEES

4.1 COMMITTEES OF DIRECTORS

The Board of Directors may, by resolution adopted by a majority of the
authorized number of directors, designate one or more committees, each
consisting of two (2) or more directors, to serve at the pleasure of the Board.
The Board may designate one or more directors as alternate members of any
committee, who may replace any absent member at any meeting of the committee.
The appointment of members or alternate members of a committee requires the vote
of a majority of the authorized number of directors. Any such committee shall
have authority to act in the manner and to the extent provided in the resolution
of the Board and may have all the authority of the Board, except with respect
to:

(a) The approval of any action which, under the Code, also
requires shareholders' approval or approval of the outstanding shares.

9
<PAGE>

(b) The filling of vacancies on the Board of Directors or
in any committee.

(d) The amendment or repeal of these Bylaws or the
adoption of new Bylaws.

(e) The amendment or repeal of any resolution of the Board
of Directors which by its express terms is not so amendable or repealable.

(f) A distribution to the shareholders of the corporation,
except at a rate, in a periodic amount or within a price range set forth in the
Articles of Incorporation or determined by the Board of Directors.

(g) The appointment of any other committees of the Board
of Directors or the members thereof.

4.2 MEETINGS AND ACTION OF COMMITTEES

Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these Bylaws, Section
3.6 (place of meetings), Section 3.7 (regular meetings), Section 3.8 (special
meetings and notice), Section 3.9 (quorum), Section 3.10 (waiver of notice),
Section 3.11 (adjournment), Section 3.12 (notice of adjournment), and Section
3.13 (action without meeting), with such changes in the context of those Bylaws
as are necessary to substitute the committee and its members for the Board of
Directors and its members; provided, however, that the time of regular meetings
of committees may be determined either by resolution of the Board of Directors
or by resolution of the committee, that special meetings of committees may also
be called by resolution of the Board of Directors, and that notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The Board of Directors
may adopt rules for the government of any committee not inconsistent with the
provisions of these Bylaws.

ARTICLE V

OFFICERS

5.1 OFFICERS

The officers of the corporation shall be a President and Chief
Executive Officer, an Executive Vice President, a Chief Financial Officer and
Treasurer and a Secretary. The corporation may also have, at the discretion of
the Board of Directors, a Chairman of the Board, one or more Vice Presidents,
one or more Assistant Secretaries, one or more Assistant Treasurers, and such
other officers as may be appointed in accordance with the provisions of Section
5.3 of these Bylaws. Any number of offices may be held by the same person.

5.2 APPOINTMENT OF OFFICERS; INITIAL OFFICERS

The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Section 5.3 or Section 5.5 of
these Bylaws, shall be chosen by the Board and serve at the pleasure of the
Board, subject to the rights, if any, of an officer under any contract of
employment.

10
<PAGE>

The initial officers of the corporation shall be the officers of the
Trust at the time of the incorporation of the Trust.

5.3 SUBORDINATE OFFICERS

The Board of Directors may appoint, or may empower the Chairman of the
Board or the President to appoint, such other officers as the business of the
corporation may require, each of whom shall hold office for such period, have
such authority, and perform such duties as are provided in these Bylaws or as
the Board of Directors may from time to time determine.

5.4 REMOVAL AND RESIGNATION OF OFFICERS

Subject to the rights, if any, of an officer under any contract of
employment, all officers serve at the pleasure of the Board of Directors and any
officer may be removed, either with or without cause, by the Board of Directors
at any regular or special meeting of the Board or, except in case of an officer
chosen by the Board of Directors, by any officer upon whom such power of removal
may be conferred by the Board of Directors.

Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.

5.5 VACANCIES IN OFFICES

A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these Bylaws for regular appointments to that office.

5.6 CHAIRMAN OF THE BOARD

The Chairman of the Board, if such an officer be elected, shall, if
present, preside at meetings of the Board of Directors and exercise and perform
such other powers and duties as may from time to time be assigned by the Board
of Directors or as may be prescribed by these Bylaws. If there is no President,
then the Chairman of the Board shall also be the chief executive officer of the
corporation and shall have the powers and duties prescribed in Section 5.7 of
these Bylaws.

5.7 PRESIDENT

Subject to such supervisory powers, if any, as may be given by the
Board of Directors to the Chairman of the Board, if there be such an officer,
the President shall be the chief executive officer of the corporation and shall,
subject to the control of the Board of Directors, have general supervision,
direction, and control of the business and the officers of the corporation. The
President shall preside at all meetings of the shareholders and, in the absence
or nonexistence of a Chairman of the Board, at all meetings of the Board of
Directors. The President shall have the general powers and duties of management
usually vested in the office of President of a corporation, and shall have such
other powers and duties as may be prescribed by the Board of Directors or these
Bylaws.

11
<PAGE>

5.8 VICE PRESIDENTS

In the absence or disability of the President, the Vice Presidents, if
any, in order of their rank as fixed by the Board of Directors or, if not
ranked, a Vice President designated by the Board of Directors, shall perform all
the duties of the President and when so acting shall have all the powers of, and
be subject to all the restrictions upon, the President. The Vice Presidents
shall have such other powers and perform such other duties as from time to time
may be prescribed for them respectively by the Board of Directors, these Bylaws,
the President or the Chairman of the Board.

5.9 SECRETARY

The Secretary shall keep or cause to be kept, at the principal
executive office of the corporation or such other place as the Board of
Directors may direct, a book of minutes of all meetings and actions of
Directors, committees of directors and shareholders. The minutes shall show the
time and place of each meeting, whether regular or special (and, if special, how
authorized and the notice given), the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
shareholders' meetings, and the proceedings thereof.

The Secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the Board of
Directors, a share register, or a duplicate share register, showing the names of
all shareholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.

The Secretary shall give, or cause to be given, notice of all meetings
of the shareholders and of the Board of Directors required to be given by law or
by these Bylaws. The Secretary shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the Board of Directors or by these Bylaws.

5.10 CHIEF FINANCIAL OFFICER

The Chief Financial Officer shall keep and maintain, or cause to be
kept and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.

The Chief Financial Officer shall deposit all money and other valuables
in the name and to the credit of the corporation with such depositaries as may
be designated by the Board of Directors. The Chief Financial Officer shall
disburse the funds of the corporation as may be ordered by the Board of
Directors, shall render to the President and directors, whenever they request
it, an account of all of his or her transactions as Chief Financial Officer and
of the financial condition of the corporation, and shall have such other powers
and perform such other duties as may be prescribed by the Board of Directors or
these Bylaws.

12
<PAGE>

ARTICLE VI

RECORDS AND REPORTS

6.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER

The corporation shall keep either at its principal executive office or
at the office of its transfer agent or registrar (if either be appointed), as
determined by resolution of the Board of Directors, a record of its shareholders
listing the names and addresses of all shareholders and the number and class of
shares held by each shareholder.

A shareholder or shareholders of the corporation holding at least five
percent (5%) in the aggregate of the outstanding voting shares of the
corporation or who hold at least one percent (1%) of such voting shares and have
filed a Schedule 14B with the United States Securities and Exchange Commission
relating to the election of directors, shall have an absolute right to do either
or both of the following (i) inspect and copy the record of shareholders' names,
addresses, and shareholdings during usual business hours upon five (5) days'
prior written demand upon the corporation, or (ii) obtain from the transfer
agent for the corporation, upon written demand and upon the tender of such
transfer agent's usual charges for such list (the amount of which charges shall
be stated to the shareholder by the transfer agent upon request), a list of the
shareholders' names and addresses who are entitled to vote for the election of
directors, and their shareholdings, as of the most recent record date for which
it has been compiled or as of a date specified by the shareholder subsequent to
the date of demand. The list shall be made available on or before the later of
five (5) business days after the demand is received or the date specified
therein as the date as of which the list is to be compiled.

The record of shareholders shall also be open to inspection and copying
by any shareholder or holder of a voting trust certificate at any time during
usual business hours upon written demand on the corporation, for a purpose
reasonably related to the holder's interests as a shareholder or holder of a
voting trust certificate.

Any inspection and copying under this Section 6.1 may be made in person
or by an agent or attorney of the shareholder or holder of a voting trust
certificate making the demand.

6.2 MAINTENANCE AND INSPECTION OF BYLAWS

The corporation shall keep at its principal executive office or, if its
principal executive office is not in the State of California, at its principal
business office in California, the original or a copy of these Bylaws as amended
to date, which shall be open to inspection by the shareholders at all reasonable
times during office hours. If the principal executive office of the corporation
is outside the State of California and the corporation has no principal business
office in such state, then it shall, upon the written request of any
shareholder, furnish to such shareholder a copy of these Bylaws as amended to
date.

6.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS

The accounting books and records and the minutes of proceedings of the
shareholders and the Board of Directors, and committees of the Board of
Directors shall be kept at such place or places as are designated by the Board
of Directors or, in absence of such designation, at the principal executive
office of the corporation. The minutes shall be kept in written form, and the
accounting books and records shall be kept either in written form or in any
other form capable of being converted into written form.

The minutes and accounting books and records shall be open to
inspection upon the written demand on the corporation of any shareholder or
holder of a voting trust certificate at any reasonable time during usual
business hours, for a purpose reasonably related to such holder's interests as a
shareholder or as the holder of a

13
<PAGE>

voting trust certificate. Such inspection by a shareholder or holder of a voting
trust certificate may be made in person or by an agent or attorney and the right
of inspection includes the right to copy and make extracts. Such rights of
inspection shall extend to the records of each subsidiary corporation of the
corporation.

6.4 INSPECTION BY DIRECTORS

Every director shall have the absolute right at any reasonable time to
inspect and copy all books, records, and documents of every kind and to inspect
the physical properties of the corporation and each of its subsidiary
corporations, domestic or foreign. Such inspection by a director may be made in
person or by an agent or attorney and the right of inspection includes the right
to copy and make extracts.

6.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER

The Board of Directors shall cause an annual report to be sent to the
shareholders not later than one hundred twenty (120) days after the close of the
fiscal year adopted by the corporation. Such report shall be sent to the
shareholders at least fifteen (15) (or, if sent by third-class mail, thirty-five
(35)) days prior to the annual meeting of shareholders to be held during the
next fiscal year and in the manner specified in Section 2.5 of these Bylaws for
giving notice to shareholders of the corporation.

The annual report shall contain a balance sheet as of the end of the
fiscal year and an income statement and statement of changes in financial
position for the fiscal year, accompanied by any report thereon of independent
accountants or, if there is no such report, the certificate of an authorized
officer of the corporation that the statements were prepared without audit from
the books and records of the corporation.

The foregoing requirement of an annual report shall be waived so long
as the shares of the corporation are held by fewer than one hundred (100)
holders of record.

6.6 FINANCIAL STATEMENTS

If no annual report for the fiscal year has been sent to shareholders,
then the corporation shall, upon the written request of any shareholder made
more than one hundred twenty (120) days after the close of such fiscal year,
deliver or mail to the person making the request, within thirty (30) days
thereafter, a copy of a balance sheet as of the end of such fiscal year and an
income statement and statement of changes in financial position for such fiscal
year.

A shareholder or shareholders holding at least five percent (5%) of the
outstanding shares of any class of the corporation may make a written request to
the corporation for an income statement of the corporation for the three-month,
six-month or nine-month period of the current fiscal year ended more than thirty
(30) days prior to the date of the request and a balance sheet of the
corporation as of the end of that period. The statements shall be delivered or
mailed to the person making the request within thirty (30) days thereafter. A
copy of the statements shall be kept on file in the principal office of the
corporation for twelve (12) months and it shall be exhibited at all reasonable
times to any shareholder demanding an examination of the statements or a copy
shall be mailed to the shareholder. If the corporation has not sent to the
shareholders its annual report for the last fiscal year, the statements referred
to in the first paragraph of this Section 6.6 shall likewise be delivered or
mailed to the shareholder or shareholders within thirty (30) days after the
request.

The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report thereon, if any, of any independent
accountants engaged by the corporation or the certificate of an authorized
officer of the corporation that the financial statements were prepared without
audit from the books and records of the corporation.

14
<PAGE>

6.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS

The Chairman of the Board, the President, any Vice President, the Chief
Financial Officer, the Secretary or Assistant Secretary of this corporation, or
any other person authorized by the Board of Directors or the President or a Vice
President, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority herein
granted may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.

ARTICLE VII

GENERAL MATTERS

7.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING

For purposes of determining the shareholders entitled to receive
payment of any dividend or other distribution or allotment of any rights or
entitled to exercise any rights in respect of any other lawful action (other
than with respect to notice or voting at a shareholders meeting or action by
shareholders by written consent without a meeting), the Board of Directors may
fix, in advance, a record date, which shall not be more than sixty (60) days
prior to any such action. Only shareholders of record at the close of business
on the record date are entitled to receive the dividend, distribution or
allotment of rights, or to exercise the rights, as the case may be,
notwithstanding any transfer of any shares on the books of the corporation after
the record date, except as otherwise provided in the Articles of Incorporation
or the Code.

If the Board of Directors does not so fix a record date, then the
record date for determining shareholders for any such purpose shall be at the
close of business on the day on which the Board adopts the resolution relating
thereto or the sixtieth (60th) day prior to the date of that action, whichever
is later.

7.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS

From time to time, the Board of Directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.

7.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED

The Board of Directors, except as otherwise provided in these Bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the Board of Directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.

7.4 CERTIFICATES FOR SHARES

A certificate or certificates for shares of the corporation may be
issued to each shareholder when any of such shares are fully paid. The Board of
Directors may authorize the issuance of certificates for shares partly paid
provided that these certificates shall state the total amount of the
consideration to be paid for them and the amount actually paid. All certificates
shall be signed in the name of the corporation by the Chairman of the Board

15
<PAGE>

or the Vice Chairman of the Board or the President or a Vice President and by
the Chief Financial Officer or an Assistant Treasurer or the Secretary or an
Assistant Secretary, certifying the number of shares and the class or series of
shares owned by the shareholder. Any or all of the signatures on the certificate
may be by facsimile.

In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed on a certificate has ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the corporation with the same effect as if that person were an
officer, transfer agent or registrar at the date of issue.

7.5 LOST CERTIFICATES

Except as provided in this Section 7.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation or its transfer agent or registrar and cancelled
at the same time. The Board of Directors may, in case any share certificate or
certificate for any other security is lost, stolen or destroyed (as evidenced by
a written affidavit or affirmation of such fact), authorize the issuance of
replacement certificates on such terms and conditions as the Board may require;
the Board may require indemnification of the corporation secured by a bond or
other adequate security sufficient to protect the corporation against any claim
that may be made against it, including any expense or liability, on account of
the alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.

7.6 CONSTRUCTION; DEFINITIONS

Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Code shall govern the construction of these
Bylaws. Without limiting the generality of this provision, the singular number
includes the plural, the plural number includes the singular, and the term
"person" includes both a corporation and a natural person.

ARTICLE VIII

AMENDMENTS

8.1 AMENDMENT BY SHAREHOLDERS

New Bylaws may be adopted or these Bylaws may be amended or repealed by
the vote or written consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that if the Articles of Incorporation of
the corporation set forth the number of authorized Directors of the corporation,
then the authorized number of Directors may be changed only by an amendment of
the Articles of Incorporation.

8.2 AMENDMENT BY DIRECTORS

Subject to the rights of the shareholders as provided in Section 8.1 of
these Bylaws, Bylaws, other than a Bylaw or an amendment of a Bylaw changing the
authorized number of directors (except to fix the authorized number of directors
pursuant to a Bylaw providing for a variable number of directors), may be
adopted, amended or repealed by the Board of Directors.

8.3 RECORD OF AMENDMENTS

Whenever an amendment or new Bylaw is adopted, it shall be copied in
the book of minutes with the original Bylaws. If any Bylaw is repealed, the fact
of repeal, with the date of the meeting at which the repeal was enacted or
written consent was filed, shall be stated in said book.

16
<PAGE>

ARTICLE IX

INTERPRETATION

Reference in these Bylaws to any provision of the California
Corporations Code shall be deemed to include all amendments thereof.

17
<PAGE>

SECRETARY'S CERTIFICATE OF ADOPTION OF BYLAWS
OF
CONTINENTAL MORTGAGE AND EQUITY CORPORATION

I, the undersigned, do hereby certify:

1. That I am the duly elected and acting Secretary of Continental
Mortgage and Equity Corporation, a California corporation.

2. That the foregoing Bylaws constitute the Bylaws of said
corporation as adopted by the Directors of said corporation by unanimous written
consent effective as of ____________, __, 1999.

IN WITNESS WHEREOF, I have hereunto subscribed my name this ___th day
of _________, 1999.

----------------------------
Thomas A. Holland
Secretary

<PAGE>

EXHIBIT 5.1

[LETTERHEAD OF KUMMER KAEMPFER BONNER & RENSHAW]

January 11, 1999

Securities and Exchange Commission
45 Fifth Street, N.W.
Washington, D.C. 20549

Re: Transcontinental Realty Investors, Inc.
Registration Statement on Form S-4
Registration No.
Maximum of 4,744,254 shares of Common Stock, $.01 par value

Ladies and Gentlemen:

As special Nevada counsel to Transcontinental Realty Investors, Inc.,
a Nevada corporation (the "Company"), we are rendering this opinion in
connection with the registration by the Company of a maximum of 4,744,254 shares
of common stock, $.01 par value (the "Shares"), of the Company and the proposed
issuance under the above-referenced registration statement (the "Registration
Statement").

We have examined all instruments, documents and records which we
deemed relevant and necessary for the basis of our opinion hereinafter
expressed. In such examination, we have assumed the genuineness of all
signatures and authenticity of all documents submitted to us as originals and
the conformity to the originals of all documents submitted to us as copies. We
are opining herein as to the effect on the subject transaction only of the
general corporation laws of the State of Nevada, and we express no opinion with
respect to the applicability thereto, or the effect thereon, of the laws of any
other jurisdiction, or, in the case of Nevada, any other laws.

Subject to the foregoing, it is our opinion that the Shares have been
duly authorized, and, upon issuance, delivery and payment therefor in the manner
contemplated by the Registration Statement, will be validly issued, fully paid
and non-assessable. We consent to the filing of this opinion as an exhibit to
the Registration Statement and to the reference to our firm contained under the
heading "Legal Matters."

Sincerely,

/s/ Kummer Kaempfer Bonner & Renshaw

KUMMER KAEMPFER BONNER & RENSHAW

<PAGE>

EXHIBIT 8.1

[LETTERHEAD OF ANDREWS & KURTH L.L.P.]

January 12, 1998

Transcontinental Realty Investors, Inc.
10670 North Central Expressway
Suite 300
Dallas, Texas 75231

Re: Conversion of Continental Mortgage and Equity Trust, a California business
trust ("CMET"), into Continental Mortgage and Equity Corporation, a
California corporation ("CME Corporation"), followed by the merger of CME
Corporation with and into Transcontinental Realty Investors, Inc., a Nevada
corporation ("TCI").

Ladies and Gentlemen:

We have acted as counsel for TCI in connection with a Registration
Statement on Form S-4 filed with the Securities and Exchange Commission under
the Securities Act of 1933, as amended (the "Registration Statement"), covering
shares of TCI's common stock, par value $.01 per share (the "Common Stock"), to
be offered in connection with the proposed conversion of CMET into CME
Corporation (the "Incorporation Procedure") followed by the merger of CME
Corporation (the successor in interest to CMET) with and into TCI (the
"Merger"). In that capacity, we have examined the respective articles of
incorporation and bylaws of TCI and of CME Corporation, the Second Amended and
Restated Declaration of Trust and the Restated Trustees' Regulations of CMET,
the Registration Statement, the corporate action taken by TCI and CME
Corporation, and the actions taken by CMET in connection with the Incorporation
Procedure to provide for the incorporation of CMET, the Merger, and the issuance
of 4,744,254 shares of the Common Stock pursuant thereto, and such other
materials and matters as we have deemed necessary to the issuance of this
opinion.

In all such examinations, we have assumed the genuineness of all
signatures, the authority to sign of all signatories, the due execution of all
original and certified documents, and the conformity to the original and
certified documents of all copies submitted to us as conformed, photostatic or
facsimile copies. As to various questions of fact material to our opinion, we
have relied upon statements and certificates of officers of TCI, CME Corporation
and CMET, public officials and others. In addition, we have assumed that the
Agreement and Plan of Merger entered into between CMET and TCI in connection
with the Merger (the "Merger Agreement") will become effective substantially in
the form included in the Registration Statement and that the Incorporation
Procedure will be consummated as described in the Registration Statement and
pursuant to and in accordance with the Merger Agreement.
<PAGE>

Transcontinental Realty Investors, Inc.
January 12, 1998

Page 2

Based upon such examination and the qualifications set forth herein and in
reliance thereon, we are of the opinion that (i) for United States federal
income tax purposes the Incorporation Procedure will constitute a reorganization
within the meaning of section 368(a)(1)(F) of the Internal Revenue Code of l986,
as amended (the "Code"), (ii) for United States federal income tax purposes the
Merger will constitute a reorganization within the meaning of section
368(a)(1)(A) of the Code, and (ii) the information in the Registration Statement
under the caption "Proposed Incorporation Procedure and Merger -- Material
Federal Income Tax Consequences," to the extent it constitutes matters of law or
legal conclusions, is correct in all material respects.

The opinions herein are based upon our interpretations of current law,
including court authority, Treasury Regulations and existing public rulings,
which are subject to change both prospectively and retroactively, and upon the
facts and assumptions discussed herein. This opinion letter is limited to the
matters set forth herein, and no opinions are intended to be implied or may be
inferred beyond those expressly stated herein. Our opinions are rendered as of
the date hereof and we assume no obligation to update or supplement these
opinions or any matter related to these opinions to reflect any change of fact,
circumstances, or law after the date hereof. In addition, our opinions are based
on the assumption that the matter, if litigated, will be properly presented to
the applicable court. Furthermore, our opinions are not binding on the Internal
Revenue Service or a court. In addition, we must note that our opinions
represent merely our best legal judgment on the matters presented and that
others may disagree with our conclusions. There can be no assurance that the
Internal Revenue Service will not take contrary positions or that a court would
agree with our opinions if litigated. In the event any one of the statements,
representations or assumptions we have relied upon to issue these opinions is
incorrect, our opinions might be adversely affected and may not be relied upon.

This opinion is limited to the matters stated herein, and no opinion is
implied or may be inferred beyond the matters expressly stated. We consent to
the filing of this opinion as an exhibit to the Registration Statement and to
the reference to this firm under the caption "Proposed Incorporation Procedure
and Merger -- Material Federal Income Tax Consequences" in the Registration
Statement and Proxy Statement/Prospectus that is a part thereof. By giving such
consent, we do not hereby admit that we are an expert with respect to any part
of the Registration Statement, including this exhibit, within the meaning of the
term "expert" as used in the Securities Act of l933, as amended. This opinion
is delivered as of the date hereof and we disclaim any responsibility to update
this opinion at any time following the date hereof.

Very truly yours,

/s/ Andrews & Kurth L.L.P.

<PAGE>

EXHIBIT 10.2

BROKERAGE AGREEMENT
BETWEEN
CONTINENTAL MORTGAGE AND EQUITY TRUST
AND
CARMEL REALTY, INC.

THIS BROKERAGE AGREEMENT dated as of February 11, 1997, between Continental
Mortgage and Equity Trust, a California business trust (the "Trust"), and Carmel
Realty, Inc. (the "Broker"), a Texas corporation.

WITNESSETH:
WHEREAS:

1. The Trust is an active real estate investment trust with funds
available for investment primarily in the acquisition of real estate.

2. The Trust owns a diversified portfolio of real estate which includes
properties which by reason of their size, location and quality, require special
efforts to sell and the Trust desires to sell certain of such property and
acquire additional property from time to time.

3. The Broker and its principal officers have extensive experience in the
sale and purchase of real estate assets.

4. The Broker is duly registered as a real estate broker, and is duly
qualified to procure the listing of real estate for
sale, lease or rental, and prospective purchasers, lessees, and
<PAGE>

renters therefor, and has the good will of, and a reputation for dealing with,
the public, and also maintains an office, properly equipped and staffed,
suitable to serving as a real estate broker.

5. In consideration for the non-exclusive opportunity offered hereby, the
Broker is willing to make an effort to sell any of the Trust's properties,
regardless of the size, quality or location of such properties.

NOW THEREFORE, in consideration of the premises and of the mutual covenants
herein contained, the parties agree as follows:

1. PROPERTY SALES. The Trust shall make available to the Broker on a non-
exclusive basis information on real estate assets the Trust desires to sell and
Broker shall work diligently and with its best efforts to sell such real estate.

2. PROPERTY ACQUISITIONS. Broker shall attempt to locate real estate
assets suitable for purchase by the Trust within the parameters set forth by the
Trust from time to time.

3. NO PARTNERSHIP OR JOINT VENTURE. The Trust and the Broker are not
partners or joint venturers with each other, and nothing herein shall be
construed so as to make them such partners or joint venturers or impose any
liability as such on either of them.

4. INDEPENDENT CONTRACTOR. The Broker will be performing professional
services for the Trust as an independent contractor and the Broker will not be
subject to the will and control of the Trust nor will the Trust have the right
to control either the method and the result of the services so performed. The
Trust will not be held responsible for the collection and payment of taxes or

2
<PAGE>

contributions of any nature on behalf of the Broker including, but not by way of
limitation, contributions on behalf of the Broker for Federal Social Security
(F.I.C.A.) for Federal and State Unemployment Compensation, for State Workman's
Compensation Insurance, for State Real Estate Commission Registration, for
State, County and Municipal Occupational Licensing or for insurance, annuity, or
retirement program in which the Broker may participate.

5. BROKERAGE SERVICES. The Broker will perform professional services as a
Registered Real Estate Broker, and the Broker will devote sufficient time and
services on behalf of the Trust to accomplish the mutual purposes of the
parties.

6. HOLD HARMLESS. The Broker will hold the Trust harmless against all
suits, claims, and obligations which the Broker may incur in performing services
as an independent contractor, and the Broker shall have no right to bind,
contract, or obligate the Trust in the performance of services.

7. LEGAL COMPLIANCE. It is understood that the Broker will abide by all
laws, ethical practices and regulations promulgated by the applicable state real
estate commissions or other regulatory bodies.

8. PURCHASE COMMISSION. For locating and negotiating the lease or purchase
of any real property by the Trust, the Broker is to receive a purchase
commission in accordance with the fee schedule attached as Exhibit A to this
Agreement. The aggregate of each purchase price of each property (including the
purchase commission

3
<PAGE>

paid to the Broker and the Trust's advisor) may not exceed such property's
appraised value at acquisition. Any commission which is paid to the Broker by
the seller shall be credited against the commission to be paid by the Trust
hereunder.

9. REAL ESTATE SALES COMMISSION. For the sale of each property, the Broker
is to receive a real estate sales commission in accordance with the fee schedule
attached as Exhibit A to this Agreement.

10. EXPENSES OF THE BROKER. Without regard to the amount of compensation
received hereunder by the Broker, the Broker shall bear the following expenses:

(a) employment expenses of the personnel employed by the Broker,
including, but not limited to, fees, salaries, wages, payroll taxes, travel
expenses, and the cost of employee benefit plans and temporary help expenses;

(b) advertising and promotional expenses incurred in seeking
investment opportunities for the Trust;

(d) miscellaneous administrative expenses relating to performance by
the Broker of its functions hereunder.

11. OTHER ACTIVITIES OF BROKER. Nothing herein contained shall prevent the
Broker or any of its officers, directors, or employees or any of its affiliates
from engaging in other business activities related to real estate investments or
from acting as broker to any other person or entity (including another real
estate investment

4
<PAGE>

trust), even though having investment policies similar to the Trust, and the
Broker and its officers, directors, or employees. The Broker shall have a duty
to present to the Trust any investment opportunity that comes to the Broker or
any of its affiliates if such opportunity is within the Trust's investment
policies.

12. TERM; TERMINATION OF AGREEMENT. This Agreement shall continue in force
for a period of twelve months, and thereafter it may be renewed from year to
year, subject to the approval of a majority of the Trustees of the Trust who are
not affiliated with the Broker. Notice of renewal shall be given in writing by
the Trustees to the Broker not less than 60 days before the expiration of this
Agreement or of any extension thereof. Notwithstanding any other provision to
the contrary, this Agreement may be terminated for any reason without penalty
upon written notice by the Trust to the Broker or written notice by the Broker
to the Trust, in the former case by the vote of a majority of the Trustees who
are not affiliates of the Broker.

13. AMENDMENTS. This Agreement shall not be changed, modified, terminated
or discharged in whole or in part except by an instrument in writing signed by
both parties hereto, or their respective successors or assigns, or otherwise as
provided herein.

14. ASSIGNMENT. This Agreement shall not be assigned by the Broker without
the prior consent of the Trust. The Trust may terminate this Agreement in the
event of its assignment by the Broker without the prior consent of the Trust.
Such an assignment or any other assignment of this Agreement shall bind the
assignee

5
<PAGE>

hereunder in the same manner as the Broker is bound hereunder. This Agreement
shall not be assignable by the Trust without the consent of the Broker, except
in the case of assignment by the Trust to a corporation, association, trust, or
other organization that is a successor to the Trust. Such successor shall be
bound hereunder and by the terms of said assignment in the same manner as the
Trust is bound hereunder.

15. DEFAULT, BANKRUPTCY, ETC. At the option solely of the Trustees, this
Agreement shall be and become terminated immediately upon written notice of
termination from the Trustees to the Broker if any of the following events shall
occur:

(a) If the Broker shall violate any provision of this Agreement, and
after notice of such violation shall not cure such default within 30 days; or

(b) If the Broker shall be adjudged bankrupt or insolvent by a court of
competent jurisdiction, or an order shall be made by a court of competent
jurisdiction for the appointment of a receiver, liquidator, or trustee of the
Broker or of all or substantially all of its property by reason of the
foregoing, or approving any petition filed against the Broker for its
reorganization, and such adjudication or order shall remain in force or unstayed
for a period of 30 days; or

(c) If the Broker shall institute proceedings for voluntary bankruptcy
or shall file a petition seeking reorganization under the Federal bankruptcy
laws, or for relief under any law for the relief of debtors, or shall consent to
the

6
<PAGE>

appointment of a receiver of itself or of all or substantially all its property,
or shall make a general assignment for the benefit of its creditors, or shall
admit in writing its inability to pay its debts generally, as they become due.

The Broker agrees that if any of the events specified in subsections (b)
and (c) of this Section shall occur, it will give written notice thereof to the
Trustees within seven days after the occurrence of such event.

16. ACTION UPON TERMINATION. From and after the effective date of
termination of this Agreement, pursuant to Sections 12, 14 or 15 hereof, the
Broker shall not be entitled to compensation for further services hereunder but
shall be paid all compensation earned to the date of termination.

17. MISCELLANEOUS. The Broker assumes no responsibility under this
Agreement other than to render the services called for hereunder in good faith,
and shall not be responsible for any action of the Trust in following or
declining to follow any advice or recommendations of the Broker. Neither the
Broker nor any of its shareholders, directors, officers, or employees shall be
liable to the Trust, the Trustees, the holders of securities of the Trust or to
any successor or assign of the Trust except by reason of acts constituting bad
faith, willful misfeasance, gross negligence, or reckless disregard of their
duties.

18. NOTICES. Any notice, report, or other communication required or
permitted to be given hereunder shall be in writing unless some other method of
giving such notice, report, or other

7
<PAGE>

communication is accepted by the party to whom it is given, and shall be given
by being delivered at the following addresses of the parties hereto:

The Trust:

Continental Mortgage and Equity Trust
10670 North Central Expressway
Suite 600
Dallas, Texas 75231
Attention: President

The Broker:

Carmel Realty, Inc.
10670 North Central Expressway
Suite 600
Dallas, Texas 75231
Attention: Chief Executive Officer

Either party may at any time give notice in writing to the other party of a
change of its address for the purpose of this Section.

19. HEADINGS. The section headings hereof have been inserted for
convenience of reference only and shall not be construed to affect the meaning,
construction, or effect of this Agreement.

20. GOVERNING LAW. This Agreement has been prepared, negotiated and
executed in the State of Texas. The provisions of this Agreement shall be
construed and interpreted in accordance with the laws of the State of Texas
applicable to agreements made and to be performed entirely in the State of
Texas.

21. EXECUTION. This instrument is executed and made on behalf of the Trust
by an officer of the Trust, not individually but solely as an officer, and the
obligations under this Agreement are not binding upon, nor shall resort be had
to the private property

8
<PAGE>

of, any of the Trustees, shareholders, officers, employees, or agents of the
Trust personally, but bind only the Trust property.

IN WITNESS WHEREOF, CONTINENTAL MORTGAGE AND EQUITY TRUST and CARMEL
REALTY, INC., by their duly authorized officers, have signed these presents all
as of the day and year first above written.

CONTINENTAL MORTGAGE AND EQUITY TRUST

By: /s/ RANDALL M. PAULSON
--------------------------------
Randall M. Paulson
President

CARMEL REALTY, INC.

By: /s/ BRUCE A. ENDENDYK
--------------------------------
Bruce A. Endendyk
President

9
<PAGE>

EXHIBIT A

FEE SCHEDULE

The following fees shall be paid by the Company in accordance with the
Brokerage Agreement with Carmel Realty, Inc.

Maximum fee of 5% on the first $2,000,000 of any purchase or sale
transaction of which no more than 4% would be paid to Carmel Realty,
Inc. or affiliates;

Maximum fee of 4% on transaction amounts between $2,000,000 -
$5,000,000 of which no more than 3% would be paid to Carmel Realty,
Inc. or affiliates;

Maximum fee of 3% on transaction amounts between $5,000,000 -
$10,000,000 of which no more than 2% would be paid to Carmel Realty,
Inc. or affiliates;

Maximum fee of 2% on transaction amounts in excess of $10,000,000 of
which no more than 1-1/2% would be paid to Carmel Realty, Inc. or
affiliates.

<PAGE>

EXHIBIT 10.3

Residential

MANAGEMENT AGREEMENT

BETWEEN

CONTINENTAL MORTGAGE AND EQUITY TRUST
("OWNER")

AND

CARMEL REALTY SERVICES, LTD.
("AGENT")

DATED AS OF FEBRUARY 1, 1998

<PAGE>

MANAGEMENT AGREEMENT

Recitals

Article I - Appointment; Term of Agreement
1.01 Appointment
1.02 Term
1.03 Termination For Cause

Article II - Responsibilities of Agent
2.01 Standard of Care
2.02 Operation of Property
2.03 Employees
2.04 Enforcement of Leases
2.05 Compliance with Leases, Laws and Mortgages
2.06 Notification to Owner
2.07 Books and Records
2.08 Reports and Reconciliation of Account
2.09 Contracts
2.10 Property Taxes
2.11 Construction Management

Article III - Bank Accounts
3.01 Operating Account
3.02 Security Deposits

Article IV - Budgets and Expenditures
4.01 Business Plan
4.02 Expenses Paid from Operating Account
4.03 Insufficient Income
4.04 Limitation on Payments

Article V - Indemnification and Insurance
5.01 Insurance
5.02 Certificates and Policies of Insurance
5.03 Owner's Liability Insurance
5.04 Agent's Responsibilities

Article VI - Compensation of Agent and Management Facilities
6.01 Agent's Fee

Article VII - Termination
7.01 Obligations Upon Termination
7.02 Remedies

2
<PAGE>

Article VIII - Miscellaneous Provisions
8.01 Headings
8.02 Notice
8.03 Relationship of the Parties
8.04 Entire Agreement
8.05 Assignment
8.06 Legal Representatives, Successors, Transfers and Assigns
8.07 Attorneys' Fees
8.08 Time of the Essence
8.09 Governing Law
8.10 Severability
8.11 No Interest in Condemnation or Insurance Proceeds
8.12 Mutual Waiver
8.13 Owner's Operating Procedures
8.14 Asbestos and Toxic Wastes
8.15 Other Engagements
8.16 Subordination
8.17 Delegation of Duties

Signatures

Exhibit "A" - Property Description

3
<PAGE>

MANAGEMENT AGREEMENT

THIS MANAGEMENT AGREEMENT (the "Agreement") is made and entered into as of
the 1st day of February, 1998, by and between CONTINENTAL MORTGAGE AND EQUITY
TRUST, a California Real Estate Investment Trust ("Owner") and CARMEL REALTY
SERVICES, LTD., a Texas partnership ("Agent").

W I T N E S S E T H:

WHEREAS, Owner is the owner of the real property more particularly
described on Exhibit "A", attached hereto and by this reference made a part
hereof (the "Land"); there are certain improvements on the Land, which include,
but are not limited to, that certain apartment project known as "See Exhibit A"
(the "Building");

WHEREAS, the Land, the Building and any parking facility or structure
located on the Land are sometimes collectively referred to herein as the
"Property";

WHEREAS, Owner desires to appoint and Agent desires to accept the
appointment, to supervise the overall management and operation of the Property,
and to engage such entity or entities for the performance of day-to-day
management and operation of the Property as Agent deems necessary or
appropriate; and

WHEREAS, this Agreement is entered into for the purpose of setting forth
the terms on which Agent will manage the Property.

NOW THEREFORE, incorporating the recitals as set forth above, and in
consideration of the mutual covenants herein contained, and Ten and No/100
Dollars ($10.00) and other good and valuable consideration paid by the parties
hereto to one another, the receipt and sufficiency of which are acknowledged,
the parties hereto do covenant and agree as follows:

4
<PAGE>

ARTICLE I

APPOINTMENT; TERM OF AGREEMENT

1.01 Appointment. Subject to the terms and conditions hereof, Owner hereby
appoints Agent and delegates to Agent the sole and exclusive right to manage,
supervise and operate the Property, and Agent hereby accepts its appointment.

1.02 Term. This Agreement shall commence on February 1, 1998 (the
"Commencement Date") and continue for a period of one (1) year, unless sooner
terminated as provided herein (a) for "Cause" (as herein defined) or (b) upon
the giving of thirty (30) days written notice by either party to the other of
its intent to terminate this Agreement in its sole discretion without the
necessity of showing Cause. The entire term of this Agreement is sometimes
herein referred to as the "Term".

1.03 Termination For Cause. Owner, at its option, may terminate this
Agreement for "Cause" at any time upon giving written notice thereof and the
Term "Cause" shall be limited to (a) fraud, misrepresentation, misappropriation
of funds, furnishing any statement, report, notice, writing, or schedule to
Owner that Agent knows is untrue or misleading in any material respect on the
date as of which the facts set forth therein are stated or certified, or breach
of trust by Agent or (b) an intentional or grossly negligent or illegal act
committed by Agent against Owner.

ARTICLE II

RESPONSIBILITIES OF AGENT

2.01 Standard of Care. Agent shall operate, manage and maintain the
Property, for and on behalf of Owner, diligently and in good faith, in
accordance with sound, reasonable and prudent property management practices.

2.02 Operation of Property. Agent shall collect the Gross Monthly
Collections (as defined in Section 6.01(b) hereof), comply with the provisions
of the manager's policy manual provided by Owner (the "Policy Manual"), and
institute, be responsible for and supervise, at the expense of Owner, all
maintenance and operational activities of the Property, including, but not
limited to, the following:

5
<PAGE>

(a) providing any necessary repairs to the Property and a
preventative maintenance program for all mechanical, electrical and
plumbing systems and equipment on the Property;

(b) contracting in the name of Owner for gas, electricity, water and
such other utility services to be furnished to the Property as Agent deems
appropriate;

(d) any other activity expedient to the operation of the Property.

2.03 Employees.

(a) All matters pertaining to the employment, supervision,
compensation, promotion and discharge of employees who are managing and
operating the Property are the responsibility of Agent, and Agent shall be
in all respects the employer of such employees.

(b) Agent shall fully comply with all applicable laws and regulations
having to do with workers' compensation, social security, unemployment
insurance, hours of labor, wages, working conditions and other employer-
employee related subjects.

(c) In the event that Agent's employees are engaged to work in
connection with other properties than the Property, wages and other
expenses with respect to such work shall be allocated between properties,
which allocations shall be subject to review by Owner.

2.04 Enforcement of Leases. Agent shall use diligent efforts to enforce
the terms of all tenant leases and to collect all rents (including tenants'
obligations to pay a portion of operating expenses, taxes and common area
maintenance charges) and other charges which may become due at any time from any
tenant or from others for services provided in connection with or for the use of
the Property, or any portion thereof. All monies so collected shall be
deposited in the "Operating Account" (as that term is defined in Section 3.01
herein).

6
<PAGE>

2.05 Compliance with Leases, Laws and Mortgages. Agent shall fulfill all
the obligations of the Owner as landlord under leases pertaining to the Property
which shall, however, be in the name of and executed by Owner as landlord.
Agent shall operate the Property in compliance with federal, state and local
laws, ordinances, regulations and orders and the terms of the local Board of
Fire Underwriters or similar body, any space lease, ground lease, and lien or
security instrument affecting or encumbering the Property or Building; and Agent
shall immediately provide Owner with written notice of any violation or default
pursuant to any of the foregoing and shall remedy same. From the Operating
Account, Agent shall make payments due to ground lessors or mortgagees of the
Property.

2.06 Notification to Owner. In addition to all other notices provided for
herein, Agent shall, to the extent of its knowledge, promptly notify Owner of
all material adverse matters concerning the Property, including, without
limitation:

(a) all lawsuits, condemnation proceedings, zoning or any other
governmental orders, notices, actions or threats that may adversely affect
the Property;

(b) any major and material claim made by a tenant that Agent or Owner
has failed to perform any obligations of Owner or Agent under any lease or
agreement to which the Agent or Owner is a party;

(c) the occurrence of any fire or other casualty on or about the
Property or any other personal injury or property damage (such notice to be
in compliance with the requirements of all insurance policies), and Agent
shall permit insurance adjustors to view damages before repairs are started
except for emergency situations;

(d) any requirement of any insurance carrier or of any governmental
agency with respect to the Property;

(e) any material offers to purchase the Property; and

7
<PAGE>

otherwise regulated by any now or hereafter existing local, state, or
federal statute, ordinance, rule, regulation, or the like or (ii) poses or
may pose a risk to the health, safety or physical well-being of persons.

2.07 Books and Records. Agent shall maintain separate, complete and
identifiable records and files, in the format required by Owner, on all matters
pertaining to the Property and Building, including, but not limited to, all
revenues and expenditures, service contracts and leases. Said books and records
shall be kept at the offices of Agent in the Building or such other place as
Owner and Agent from time to time agree. Agent shall keep accurate and complete
books and accounts in accordance with tax basis accounting principles,
consistently applied, showing operations and transactions relating to the
Property and showing (provided that Owner furnishes appropriate information to
Agent) the assets, liabilities, and financial condition of the Property. Agent
shall be responsible for developing a comprehensive accounting system consistent
with the aforesaid goals, and for conducting all internal audits at the
Property. Owner's duly authorized representatives shall at all times during
regular business hours have the right to audit said records and books.

2.08 Reports and Reconciliation of Accounts. On or before the tenth (10th)
day of each month during the Term or as otherwise directed by Owner, Agent shall
provide to Owner such reports pertaining to the Property as are required by
Owner in the form as specified in the Policy Manual.

2.09 Contracts.

(a) Unless otherwise requested by Owner, all contracts relating to the
operation of the Property shall be in the name of and executed by Agent on
behalf of Owner, subject, however, to Owner's prior written approval of the
terms and conditions of all such contracts, and all of such contracts shall
be terminable upon the giving of thirty (30) days written notice.

(b) Agent may not enter into contracts pertaining to the Property
with parties affiliated with, under the common control of or controlled by
Agent unless specifically consented to in writing by Owner. Unless
specifically consented to in writing by Owner, personnel of Agent may not
be used to provide services which could be provided by outside

8
<PAGE>

personnel or agencies (including, but not limited to, landscaping and HVAC
maintenance).

(c) Agent shall use reasonable efforts to require that each
independent contractor indemnify and save harmless Owner and any partners
of Owner and its officers, directors, agents, employees, and subsidiaries
from and against all liability, claims and demands on account of injury to
persons (including death) and damage to property arising out of or
resulting from the willful misconduct or gross negligence of the
independent contractor, or employees or agents of the independent
contractor, in the performance of the contract or work by the independent
contractor, its employees, or agents, or from the independent contractor's
property. Agent shall also use reasonable efforts to induce the
independent contractor and such agents to agree that such independent
contractor and such agents shall, at its expense, (i) defend any and all
suits or actions against Owner or a partner of Owner and/or Agent brought
as a result of any such willful misconduct or gross negligence, (ii) pay
all reasonable attorneys' fees and all other expenses in connection
therewith, and (iii) promptly discharge any judgments arising therefrom.
Before engaging any independent contractor, Agent shall cause each such
independent contractor to provide Owner with evidence of any insurance
Owner, in its reasonable judgment, deems that such independent contractor
should carry.

(d) Agent shall be specifically responsible for the periodic review of
all laundry, cable television and similar service contracts which may be in
effect at the Property.

2.10 Property Taxes. Agent shall promptly send to Owner upon receipt
copies of all notices of assessment or reassessment and tax bills affecting the
Property. Agent shall (i) pay such taxes, (ii) take full advantage of all
discounts available in connection with the payment thereof and (iii) promptly
send to Owner receipted copies of all tax bills, provided that Owner provides
Agent with all funds required to make such payments. Agent shall be responsible
for administering all tax appeals.

9
<PAGE>

Owner's architect of the planning of all work, obtaining of bids from trade
contractors, administration of all contracts and the performance thereof by
trade contractors and subcontractors and liaison with Owner, Owner's architect
and any tenants for whom work is being performed.

ARTICLE III

BANK ACCOUNTS

3.01 Operating Account. Agent shall deposit all rents and other funds
collected from the operation of the Property, including but not limited to any
and all advance funds in a special account (the "Operating Account") for the
Property in the name of Owner in a federally insured financial institution
designated or approved by Owner. Agent and Owner shall each be authorized
signatories on the Operating Account. Out of the Operating Account, Agent shall
pay the operating expenses of the Property and any other payments relative to
the Property as permitted by the terms of this Agreement. The balance in the
Operating Account shall be transferred at such times as may be designated by
Owner to Agent in writing from time to time, to an account of Owner at the
financial institution designated by Owner.

3.02 Security Deposits. Agent shall deposit tenant security deposits in a
special account in the name of Owner in a financial institution designated by
Owner. Agent and Owner shall each be authorized signatories on the account.
Agent shall maintain detailed records of all security deposits, which records
may be inspected by Owner's employees or appointees.

ARTICLE IV

BUDGETS AND EXPENDITURES

4.01 Business Plan. Within twenty (20) days after the Commencement Date
with respect to the first calendar year of the Term, and no later than October
15th of each year during the Term with respect to any subsequent calendar years
(or at such other date as designated by Owner, but no more frequently than once
during each twelve month period), Agent shall prepare, in the form specified in
the Policy Manual, and submit to Owner for Owner's approval a Business Plan
(following Owner's approval, the "Approved Budgets") for the management and
operation of the Property and Building for the forthcoming twelve month period
which shall

10
<PAGE>

include an Operating Budget (following Owner's approval, the "Approved Operating
Budget") and a Capital Budget (following Owner's approval, the "Approved Capital
Budget"). Budget line items shall include:

(a) costs of the gross salary and compensation, or pro rata share
thereof, including, but not limited to, payroll taxes, insurance, workers'
compensation and other benefits, of any of Agent's staff whose full-time,
on-site duties involve the day to day operation or management of the
Property;

(b) costs necessary for the management, operation, and maintenance of
the Property; and

4.02 Expenses Paid from Operating Account. All expenditures contemplated
to be paid from the Operating Account are limited to the extent that such costs
and expenses are authorized by this Agreement and in the Approved Budgets then
in effect.

4.03 Insufficient Income. If at any time the cash in the Operating Account
shall not be sufficient to pay the bills and charges which have been or may be
incurred with respect to the Property and which are payable from the Operating
Account, Agent shall notify Owner immediately upon first projection or awareness
of a cash shortage or pending cash shortage.

4.04 Limitation on Payments. Under no circumstances shall Agent pay or
obligate Owner to pay, or otherwise incur any liability of any kind or nature
for, any cost or expense other than those expressly provided for and authorized
under the Approved Budgets in effect from time to time. Notwithstanding Owner's
approval of the Approved Capital Budget, no expenditure may be made for items
appearing thereon until Owner has authorized such expenditure.

ARTICLE V

INSURANCE AND INDEMNIFICATION

5.01 Insurance. Agent shall recommend to the Owner the insurance coverage
it considers appropriate for the Property. Upon approval by Owner, Agent shall
be responsible for the placement of

11
<PAGE>

all insurance, adjustment of any losses covered by such insurance and the
institution of appropriate safety procedures at the Property which will minimize
insurance claims to the extent possible. Throughout the Term, Agent shall
maintain in full force and effect the following kinds of insurance covering its
operations on the Property, in amounts and with coverages satisfactory to Owner,
(with the insurance described in (a) below to be maintained at Owner's expense
and the insurance described in (b), (c), (d) and (e) below to be maintained at
Agent's expense):

(a) worker's compensation and employer's liability insurance,
covering only full time, on-site employees at the Property;

(b) comprehensive general liability insurance, including coverage for
personal injury and coverage concerning the contractual liability of Agent
to Owner described in Section 5.04 herein, with Owner named as an
additional insured;

(c) comprehensive automobile liability insurance, when the services
to be performed require the use of a motor vehicle, with Owner named as an
additional insured;

(d) a fidelity bond, in the name or for the benefit of Owner, in an
amount of not less than $1,000,000.00, the coverage of which shall include,
but not be limited to, Agent and all employees of Agent who handle any
income derived from the Property, with Owner named as loss payee; and

(e) worker's compensation and employer's liability insurance covering
Agent's employees not included in the insurance described in (a) above,
with Owner named as an additional insured.

5.02 Certificates and Policies of Insurance.

(a) Certificates of the insurance coverages as described above shall
be delivered to Owner on or before the Commencement Date, evidencing that
such insurance is in force, together with copies of the policies (certified
as true, correct, and complete by the insurer) of insurance to which such
certificates refer. Within fifteen (15) calendar days prior to expiration
of any such insurance coverage, new certificates shall be delivered,
certified as aforesaid, evidencing renewal of such insurance coverage.

12
<PAGE>

(b) All certificates must contain waiver of subrogation clauses and
must provide that if such policies are canceled or changed during the
period of coverage as cited therein in such manner as to affect the
insurance coverage, written notice will be mailed to Owner and Agent by
registered or certified mail delivered at least thirty (30) calendar days
prior to such cancellation or change (and such certificates shall include
no language absolving the issuer thereof from liability for its failure so
to provide such notice).

5.03 Owner's Liability Insurance. Owner agrees to carry comprehensive
general liability insurance and such other insurance as Owner may determine to
be necessary for the protection of the interests of Owner and Agent, the carrier
and the amount of coverage in each policy to be decided upon by Owner in Owner's
reasonable judgment, or Owner may elect to self-insure.

5.04 Agent's Responsibilities. Except to the extent Owner is reimbursed
under any insurance policy covering such risks (or would have been reimbursed by
an insurance policy except for the fact that Owner elects to self-insure against
such risks), Agent shall be liable to Owner for, and shall indemnify and hold
harmless Owner from, any and all claims, demands, causes of action, debts,
liabilities, judgments, damages and expense, including, without limitation,
costs and reasonable attorneys' fees in connection with the enforcement of this
indemnity (collectively, the "Claims"), which may be incurred by or made against
Owner arising out of (a) the gross negligence, willful misconduct, fraud, breach
of trust, illegal acts or intentional misrepresentation of Agent or its
employees, or (b) a material breach by Agent or its employees of an express and
clear provision of this Agreement; provided however, Agent and its employees
shall not be liable for, and shall not be required to indemnify Owner from, any
Claims caused by the acts or omissions by Agent or its employees and reasonably
believed in good faith by the party so acting to be within the scope of the
authority granted Agent or any other party under this Agreement or under any
contract or agreement authorized hereby.

13
<PAGE>

ARTICLE VI

COMPENSATION OF AGENT

6.01 Management Fee.

(a) Owner agrees to pay Agent, and Agent agrees to accept as full
compensation for the services to be rendered to Owner hereunder during the
Term hereof, a sum (the "Management Fee") equal to five percent (5%) of the
"Gross Monthly Collections" (as defined below) from the Property when, as,
and only to the extent actually collected from the Property. The Management
Fee shall be payable monthly in arrears, commencing upon the last day of
the first month or partial month, as the case may be, of the Term.

(b) "Gross Monthly Collections" shall mean the total gross monthly
collections received from the Property as a result of rental of all or any
portion of the Property, excluding, however, security deposits, payment of
money by a tenant or any other person or entity to Owner or Agent in
consideration for or in conjunction with a security deposit, fire loss
proceeds, condemnation proceeds, proceeds received by Owner in connection
with the sale of any portion of the Property or personal property located
upon the Property, and the refinancing of any indebtedness secured by a
lien on any portion of the Property or otherwise related to the operation
of the Property.

ARTICLE VII

TERMINATION

7.01 Obligations Upon Termination. Upon termination for whatever cause,
Agent shall, not later than the effective date of termination of this Agreement,
deliver to Owner the original of all books, permits, plans, records, leases,
licenses, contracts and other documents pertaining to the Property and their
operation, all insurance policies, bills of sale or other documents evidencing
title or rights of Owner, and any and all records or documents, whether or not
enumerated herein, which are necessary or desirable for the ownership and
operation of the Property. Agent shall assign unexpired service and supply
contracts to Owner or parties designated by Owner. All personal property
(including, but not limited to, capital equipment, hardware, trade and non-trade

14
<PAGE>

fixtures, materials and supplies) acquired pursuant to this Agreement, whether
paid for directly by Owner or by way of reimbursement to Agent, shall become the
property of Owner and shall remain at the Property after the termination of this
Agreement in accordance with its terms, unless Owner shall request Agent to
remove said property. The obligations set forth in this paragraph shall be in
addition to any and all other rights, liabilities and obligations created under
this Agreement and as provided by law.

7.02 Remedies. Owner's remedy to terminate this Agreement pursuant to the
terms of this Article VII shall not be exclusive, and in the event of any
default by Agent, the Owner shall be entitled to exercise any and all other
remedies and rights of Owner set forth herein or available at law or in equity
(unless expressly waived in writing by the Owner). The sole remedy of Agent in
the event of wrongful termination by Owner shall be to sue Owner for the loss of
its Management Fee during the applicable period. In no event shall Agent be
entitled to the recovery of special or consequential damages, nor shall Agent be
entitled to hold over at the Property after termination by Owner. Failure of
Agent to comply for any period with the provisions of Section 7.01 shall render
Agent liable to Owner for liquidated damages in the amount of three (3) times
the Management Fee which would have been payable to Agent during such period had
this Agreement not been terminated.

ARTICLE VIII

MISCELLANEOUS PROVISIONS

8.01 Headings. The headings used herein are for purposes of convenience
only and should not be used in construing the provisions hereof.

8.02 Notice. Any notice, demand or communication required or permitted
hereunder shall be given in writing and shall be deemed received (a)
immediately upon delivery in person; (b) three (3) days after being deposited
in the U.S. mail by certified mail, postage prepaid; or (c) the first business
day after being deposited with a recognized overnight courier service (which
courier services shall include, by way of illustration but not limitation,
Federal Express). Each such notice shall be addressed to the party to receive
such communication at the following address:

15
<PAGE>

If to Owner:

Continental Mortgage and Equity Trust
10670 North Central Expressway
Suite 600
Dallas, Texas 75231
Attention: President

If to Agent:

Carmel Realty Services, Ltd.
c/o Basic Capital Management, Inc.
10670 North Central Expressway
Suite 640
Dallas, Texas 75231
Attention: President

or other address as any party may hereafter designate by written notice to the
other parties hereto.

8.03 Relationship of the Parties. Agent is an independent contractor hired
by Owner pursuant to the terms hereof. Nothing contained in this Agreement, nor
any acts of the parties hereto, shall be deemed or construed by the parties
hereto, or either of them, or any third party, to create the relationship of
principal and agent or a partnership or a joint venture between the parties
hereto.

8.04 Entire Agreement. This Agreement represents the entire agreement
between the parties with respect to the subject matter hereof, and to the extent
inconsistent therewith, supersedes all other prior agreements, representations,
and covenants, oral or written. Amendments to this Agreement must be in writing
and signed by all parties hereto.

8.05 Assignment. Owner shall have the right, at any time and from time to
time, in its sole discretion, to assign its rights and obligations hereunder to
a third party acquiring the Property provided that any such third party enters
into a written agreement assuming Owner's obligations hereunder. Agent may not
assign its rights and obligations hereunder.

8.06 Legal Representatives, Successors, Transfers and Assigns. This
Agreement shall be binding upon and inure to the benefit of Owner and Agent and
their respective legal representatives,

16
<PAGE>

successors, transfers and assigns (but nothing contained herein shall be
interpreted to permit any assignment not otherwise expressly permitted by
another provision of this Agreement).

8.07 Attorneys' Fees. In the event of any controversy, claim or action
being filed respecting this Agreement or in connection with the Property, the
prevailing party shall be entitled, in addition to all other expenses, costs or
damages, to recover its reasonable attorneys' fees actually incurred, at
prevailing hourly rates of the attorney or law firm in question.

8.08 Time of the Essence. Time is of the essence of this Agreement.

8.09 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE WHERE THE PROPERTY IS LOCATED.

8.10 Severability. Every provision of this Agreement is intended to be
severable. If any term or provision hereof is illegal for any reason
whatsoever, such provision shall be severed from the Agreement and shall not
affect the validity of the remainder of this Agreement.

8.11 No Interest in Condemnation or Insurance Proceeds. Agent shall not
have any interest in or claim to any condemnation proceeds for the Property
awarded to Owner or any insurance proceeds paid to Owner with respect to any
casualty to the Property; provided, however, that nothing contained herein shall
prevent or be deemed to prevent Agent from pursuing or seeking an award separate
from Owner's award in any condemnation proceeding or separate claim under any
insurance policy.

8.12 Mutual Waiver. The failure by any party to exercise any right or
power given herein or by law, or to insist upon strict compliance by any other
party with any obligation imposed hereunder, shall in no event constitute a
waiver of such party's right to demand full and complete compliance with each
and every provision hereof or to exercise and enforce all available powers
and remedies.

8.13 Owner's Operating Procedures. Agent shall comply with such reasonable
rules and regulations governing operations of the Property as Owner shall from
time to time establish and make known to Agent.

17
<PAGE>

8.14 Asbestos and Toxic Wastes. Agent shall not cause any toxic wastes to
be placed upon the Property. Agent covenants that it will use reasonable
efforts to prevent the storage, emission or disposal of any dangerous, toxic or
hazardous pollutants of any sort on the Property. Agent hereby indemnifies and
holds harmless Owner from and against any loss, cost, damage or liability,
including, but not limited to, court costs and attorneys' fees, in connection
with the occurrence of any environmental hazard on the Property (as listed
above) resulting from its negligence.

8.15 Other Engagements. Owner acknowledges and consents to the fact that
Agent may be engaged in providing to other owners of other buildings in the area
of the Building, the same or similar services which Agent is providing herein
and that such engagement shall not be or be deemed to be a conflict of interest
or a breach of Agent's fiduciary duty to Owner.

8.16 Subordination. Agent shall not have any right or interest in the
Property nor any claim of lien with respect thereto. This Agreement and the
rights of Agent hereunder are and shall be subordinate to any deed to secure
debt, mortgage, deed of trust, security agreement, or other security instrument
now existing or hereafter made encumbering the Property and executed and
delivered by Owner to secure any indebtedness of Owner with respect to the
Property. Agent does hereby agree that this Agreement and all of the rights,
duties, and liabilities of Agent hereunder will be terminated as to the Property
if the holder of any such deed to secure debt, mortgage, deed of trust, security
agreement or other security instrument succeeds to all of the beneficial right,
title, and interest of Owner in and to the Property by virtue of the appointment
of a receiver, foreclosure, acceptance of a deed in lieu of foreclosure, or
otherwise.

8.17 Delegation of Duties: It is specifically agreed that Agent at Agent's
own expense may engage any entity or entities of its choice for the performance
of day-to-day management and operation of the Property as Agent deems necessary
or appropriate; provided, however, that Agent shall be responsible for continual
supervision of any such subagent so as to ensure the performance of such
delegated duties by such subagent in a professional manner in accordance with
this Agreement; and further provided that Agent may not delegate its
responsibilities with respect to (i) developing a comprehensive accounting
system and conducting internal audits under Section 2.07, (ii) reviewing service
contracts under Section 2.09, (iii) administering property taxes under Section
2.10, (iv)

18
<PAGE>

performing construction management services under Section 2.11 or (v)
administering insurance and workplace safety procedures under Section 5.01.

IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed and delivered, as of the day and year first above written.

"OWNER"

CONTINENTAL MORTGAGE AND EQUITY TRUST, a
California Real Estate Investment Trust

By: /s/ Randall M. Paulson
--------------------------------------
Name: Randall M. Paulson
Title: President

Attest: /s/ Cheryl Weaver
-----------------------------------
Cheryl Weaver
Assistant Secretary

"AGENT"

CARMEL REALTY SERVICES, LTD., a
Texas partnership
By Its General partner
BASIC CAPITAL MANAGEMENT, INC.
a Nevada corporation

By: /s/ Thomas A. Holland
---------------------------------------
Name: Thomas A. Holland
Title: Executive Vice President

Attest: /s/ Cheryl Weaver
-----------------------------------
Cheryl Weaver
Assistant Secretary

(CORPORATE SEAL)

19
<PAGE>

EXHIBIT "A"

<TABLE>
<CAPTION>
CONTINENTAL MORTGAGE AND EQUITY TRUST RESIDENTIAL LISTING 02/01/96

NO. PROJECT ENTITY METRO (CITY) ST ADDRESS ZIP CODE
==============================================================================================================
<C> <S> <C> <C> <C> <C> <C>
1. 4242 CEDAR SPRINGS CMET DALLAS TX 4242 CEDAR SPRINGS 75219
2. APPLE CREEK CMET DALLAS TX 9874 DALE CREST 75220
3. CAMELOT CMET TAMPA (LARGO) FL 200 COUNTRY CLUB DRIVE 34641
4. COUNTRY CROSSINGS CMET TAMPA (TEMPLE TERRACE) FL 4806-B HEATHER LYN COURT 33617
5. CYPRESS TREE CMET HOUSTON TX 11900 BARWOOD BEND 77065
6. EAGLE ROCK CMET LOS ANGELES CA 4323 EAGLE ROCK BLVD. 90036
7. EL CHAPARRAL CMET SAN ANTONIO TX 3819 HARRY WURZBACH 78209
8. FAIRWAYS CMET LONGVIEW TX 3623 McCANN RD. 75605
9. FOREST RIDGE CMET DALLAS (DENTON) TX 1810 WESTMINSTER 76205
10. FOUNTAIN LAKE CMET TEXAS CITY TX 9001 GLACIER 77591
11. GLENWOOD CMET ADDISON TX 3800 SPRING VALLEY ROAD 75244
12. GROVE PARK CMET PLANO TX 1705 JUPITER ROAD 75075
13. HERITAGE ON THE RIVER CMET JACKSONVILLE FL 4375 CONFEDERATE POINT 33210
14. MADISON AT BEAR CREEK CMET HOUSTON TX 5735 TIMBER CREEK PLACE DR. 77084
15. McCALLUM CROSSING CMET DALLAS TX 7720 McCALLUM BLVD. 75252
16. McCALLUM GLEN CMET DALLAS TX 7740 McCALLUM BLVD. 75252
17. OAK PARK IV CMET FREEPORT (CLUTE) TX 202 HACKBERRY 77531
18. OAK RUN CMET HOUSTON (PASADENA) TX 4100 VISTA 77504
19. PARK AT COLONNADE CMET SAN ANTONIO TX 3815 PARKDALE DRIVE 75220
20. PARK LANE VILLAGE CMET DALLAS TX 3040 PARK LANE 75220
</TABLE>

20
<PAGE>

<TABLE>
<CAPTION>
CONTINENTAL MORTGAGE AND EQUITY TRUST RESIDENTIAL LISTING 02/01/96

NO. PROJECT ENTITY METRO (CITY) ST ADDRESS ZIP CODE
==============================================================================================================
<C> <S> <C> <C> <C> <C> <C>
21. PARKWOOD KNOLL CMET SAN BERNARDINO (HIGHLAND) CA 2680 E. HIGHLAND AVE. 92346
22. PIERCE TOWER CMET DENVER CO 789 CLARKSON STREET 80218
23. QUAIL OAKS CMET DALLAS (BALCH SPRINGS) TX 12721 QUAIL DR. 75180
24. SHADOW RIDGE CMET ROCK SPRINGS WY 125 SKYLINE DR. 82901
25. SOMERSET PLACE CMET TEXAS CITY TX 2020 36TH ST. N. 77590
26. STONE OAK PLACE CMET SAN ANTONIO TX 12200 INTERSTATE 10 W. 78230
27. SUNSET LAKE CMET CHICAGO (WAUKEGAN) IL 1610 SUNSET AVE., MANAGER 60087
28. TRAILS OF WINDFERN CMET HOUSTON TX 13035 WINDFERN 77064
29. WILLOW CREEK CMET EL PASO TX 4848 N. MESA RD. 79912
30. WILLOW WICK (SC) CMET NORTH AUGUSTA SC 1200 WEST MARTINTOWN RD. 29841
31. WILLO-WICK GARDENS (FL) CMET PENSACOLA FL 6880 WEST FAIRFIELD 32506
32. WOODBRIDGE COURT CMET DENVER CO 7050 PECOS, #109 80221
</TABLE>

<PAGE>

EXHIBIT 10.4

Commercial

MANAGEMENT AGREEMENT

BETWEEN

CONTINENTAL MORTGAGE AND EQUITY TRUST
("OWNER")

AND

CARMEL REALTY SERVICES, LTD.
("MANAGER")

DATED AS OF FEBRUARY 1, 1998
<PAGE>

MANAGEMENT AGREEMENT

Recitals

Article I - Appointment; Term of Agreement
1.01 Appointment
1.02 Term
1.03 Termination For Cause

Article II - Responsibilities of Manager
2.01 Standard of Care
2.02 Operation of Property
2.03 Employees
2.04 Enforcement of Leases
2.05 Compliance with Leases, Laws and Mortgages
2.06 Notification to Owner
2.07 Books and Records
2.08 Reports and Reconciliation of Account
2.09 Contracts
2.10 Special Services
2.11 Property Taxes
2.12 Construction Management

Article III - Bank Accounts
3.01 Operating Account
3.02 Security Deposits

Article IV - Budgets and Expenditures
4.01 Business Plan
4.02 Expenses Paid from Operating Account
4.03 Insufficient Income
4.04 Limitation on Payments

Article V - Indemnification and Insurance
5.01 Insurance
5.02 Certificates and Policies of Insurance
5.03 Owner's Liability Insurance
5.04 Manager's Responsibilities

Article VI - Compensation of Manager and Management Facilities
6.01 Manager's Fee

Article VII - Termination
7.01 Obligations Upon Termination

2
<PAGE>

7.02 Remedies

Signatures

Exhibit "A" - Property Description

3
<PAGE>

MANAGEMENT AGREEMENT

THIS MANAGEMENT AGREEMENT (the "Agreement") is made and entered into as
of the 1st day of February, 1998, by and between CONTINENTAL MORTGAGE AND EQUITY
TRUST, a California Real Estate Investment Trust ("Owner") and CARMEL REALTY
SERVICES, LTD., a Texas partnership (herein called "Manager").

W I T N E S S E T H:

WHEREAS, Owner is the owner of the real property more particularly
described on Exhibit "A", attached hereto and by this reference made a part
hereof (the "Land"); there are certain improvements on the Land, which include,
but are not limited to, that certain property known as "See Exhibit A" (the
"Building");

WHEREAS, the Land, the Building and any parking facility or structure
located on the Land are sometimes collectively referred to herein as the
"Property";

WHEREAS, Owner desires to appoint Manager and Manager desires to accept
the appointment, to supervise the overall management and operation of the
Property, and to engage such entity or entities for the performance of
day-to-day management and operation of the Property as Manager deems necessary
or appropriate; and

WHEREAS, this Agreement is entered into for the purpose of setting
forth the terms on which Manager will manage the Property.

ARTICLE I

4
<PAGE>

APPOINTMENT; TERM OF AGREEMENT

1.01 Appointment. Subject to the terms and conditions hereof, Owner
hereby appoints Manager and delegates to Manager the sole and exclusive right to
manage, supervise and operate the Property, and Manager hereby accepts its
appointment.

1.03 Termination For Cause. Owner, at its option, may terminate this
Agreement for "Cause" at any time upon giving written notice thereof and the
term "Cause" shall include (a) fraud, misrepresentation, misappropriation of
funds, furnishing any statement, report, notice, writing, or schedule to Owner
that Manager knows is untrue or misleading in any material respect on the date
as of which the facts set forth therein are stated or certified, or breach of
trust by Manager, or (b) an intentional or grossly negligent or illegal act
committed by Manager against Owner.

ARTICLE II

RESPONSIBILITIES OF MANAGER

2.01 Standard of Care. Manager shall operate, manage and maintain the
Property, for and on behalf of Owner, diligently and in good faith, in
accordance with sound, reasonable and prudent property management practices.

2.02 Operation of Property. Manager shall collect the Gross Monthly
Collections (as defined in Section 6.01 (b) hereof), comply with the provisions
of the manager's policy manual provided by Owner (the "Policy Manual"), and
institute, be responsible for and supervise, at the expense of Owner, all
maintenance and operational activities of the Property, including, but not
limited to, the following:

5
<PAGE>

(a) providing any necessary repairs to the Property and a
preventative maintenance program for all mechanical, electrical and
plumbing systems and equipment on the Property;

(b) contracting in the name of Owner for gas, electricity, water
and such other utility services to be furnished to the Property as
Manager deems appropriate;

(d) any other activity expedient to the operation of the Property.

2.03 Employees.

(a) All matters pertaining to the employment, supervision,
compensation, promotion and discharge of employees who are managing and
operating the Property are the responsibility of Manager, and Manager
shall be in all respects the employer of such employees.

(b) Manager shall fully comply with all applicable laws and
regulations having to do with workers' compensation, social security,
unemployment insurance, hours of labor, wages, working conditions and
other employer-employee related subjects.

(c) In the event that Manager's employees are engaged to work in
connection with other properties than the Property, wages and other
expenses with respect to such work shall be allocated between
properties, which allocations shall be subject to review by Owner.

2.04 Enforcement of Leases.

(a) Manager shall use diligent efforts to enforce the terms of all
tenant leases and to collect all rents (including tenants' obligations
to pay a portion of operating expenses, taxes and common area
maintenance charges) and other charges which may become due at any time
from any tenant or from others for services provided in connection with
or for the use of the Property, or any portion thereof. All monies so

6
<PAGE>

collected shall be deposited in the "Operating Account" (as that term
is defined in Section 3.01 herein).

(b) Manager shall not terminate any lease, lock out a tenant,
institute any legal proceedings for the collection of rent, or
institute proceedings for recovery of possession, without the prior
written approval of Owner. Manager shall not cause to be incurred any
legal fees or costs in relation to any dispute involving a tenant (or
otherwise), except upon Owner's prior, written approval.

2.05 Compliance with Leases, Laws and Mortgages. Manager shall fulfill
all the obligations of the Owner as landlord under leases pertaining to the
Property which shall, however, be in the name of and executed by Owner as
landlord, and Manager shall have no authority to execute any lease on behalf of
Owner except as specified in writing by Owner. Manager shall operate the
Property in compliance with federal, state and local laws, ordinances,
regulations and orders and the terms of the local Board of Fire Underwriters or
similar body, any space lease, ground lease, and lien or security instrument
affecting or encumbering the Property or Building; and Manager shall immediately
provide Owner with written notice of any violation or default pursuant to any of
the foregoing and shall remedy same. From the Operating Account, Manager shall
make payments due to ground lessors or mortgagees of the Property.

2.06 Notification to Owner. In addition to all other notices provided
for herein, Manager shall, to the extent of its knowledge, promptly notify Owner
of all material adverse matters concerning the Property, including, without
limitation:

(a) all lawsuits, condemnation proceedings, zoning or any other
governmental orders, notices, actions or threats that may adversely
affect the Property;

(b) any major and material claim made by a tenant that Manager or
Owner has failed to perform any obligations of Owner or Manager under
any lease or agreement to which the Manager or Owner is a party;

(c) the occurrence of any fire or other casualty on or about the
Property or any other personal injury or property damage (such notice
to be in compliance with the requirements

7
<PAGE>

of all insurance policies), and Manager shall permit insurance
adjustors to view damages before repairs are started except for
emergency situations;

(d) any requirement of any insurance carrier or of any
governmental agency with respect to the Property;

(e) any material offers to purchase the Property; and

(f) the actual or suspected presence, use, storage, release,
disposal, or transport of any radioactive, hazardous, regulated, or
toxic substance or material on, about, or from any of the Property, the
presence, use, storage, release, disposal or transport of which either
(i) is prohibited or otherwise regulated by any now or hereafter
existing local, state, or federal statute, ordinance, rule, regulation,
or the like or (ii) poses or may pose a risk to the health, safety or
physical well-being of persons.

2.07 Books and Records. Manager shall maintain separate, complete and
identifiable records and files, in the format required by Owner, on all matters
pertaining to the Property and Building, including, but not limited to, all
revenues and expenditures, service contracts and leases. Said books and records
shall be kept at the offices of Manager in the Building or such other place as
Owner and Manager from time to time agree. Manager shall keep accurate and
complete books and accounts in accordance with tax basis accounting principles,
consistently applied, showing operations and transactions relating to the
Property and showing (provided that Owner furnishes appropriate information to
Manager) the assets, liabilities, and financial condition of the Property.
Manager shall be responsible for developing a comprehensive accounting system
consistent with the aforesaid goals, and for conducting all internal audits at
the Property. Owner's duly authorized representatives shall at all times during
regular business hours have the right to audit said records and books.

2.08 Reports and Reconciliation of Accounts. On or before the
fifteenth (15th) day of each month during the Term or as otherwise directed by
Owner, Manager shall provide to Owner such reports pertaining to the Property as
are required by Owner in the form as specified in the Policy Manual.

8
<PAGE>

2.09 Contracts.

(a) Unless otherwise requested by Owner, all contracts relating to
the operation of the Property shall be in the name of and executed by
Manager on behalf of Owner, subject, however, to Owner's prior written
approval of the terms and conditions of all such contracts, and all of
such contracts shall be terminable upon the giving of thirty (30) days
written notice.

(b) Manager may not enter into contracts pertaining to the
Property with parties affiliated with, under the common control of or
controlled by Manager unless specifically consented to in writing by
Owner. Unless specifically consented to in writing by Owner, personnel
of Manager may not be used to provide services which could be provided
by outside personnel or agencies (including, but not limited to,
landscaping and HVAC maintenance).

(c) Manager shall use reasonable efforts to require that each
independent contractor indemnify and save harmless Owner and any
partners of Owner and its officers, directors, agents, employees, and
subsidiaries from and against all liability, claims and demands on
account of injury to persons (including death) and damage to property
arising out of or resulting from the willful misconduct or gross
negligence of the independent contractor, or employees or agents of the
independent contractor, in the performance of the contract or work by
the independent contractor, its employees, or agents, or from the
independent contractor's property. Manager shall also use reasonable
efforts to induce the independent contractor and such agents to agree
that such independent contractor and such agents shall, at its expense,
(i) defend any and all suits or actions against Owner or a partner of
Owner and/or Manager brought as a result of any such willful misconduct
or gross negligence, (ii) pay all reasonable attorneys' fees and all
other expenses in connection therewith, and (iii) promptly discharge
any judgments arising therefrom. Before engaging any independent
contractor, Manager shall cause each such independent contractor to
provide Owner with evidence of any insurance Owner, in its reasonable
judgment, deems that such independent contractor should carry.

9
<PAGE>

2.10 Special Services. Manager shall furnish or cause to be furnished
additional services, including, but not limited to, the build-out or remodeling
of tenant space (collectively the "Special Services") as may be required from
time to time by particular leases pertaining to the Building. Manager shall bill
the tenants in question (or Owner, if Owner is to pay such costs pursuant to the
applicable lease) the costs of such Special Services pursuant to their tenant
leases. Manager shall obtain Owner's approval if a change in the nature of such
Special Services results in an increase in the cost of such Special Services in
excess of ten percent (10%) in the aggregate of the cost for such Special
Services as previously approved by Owner.

2.11 Property Taxes. Manager shall promptly send to Owner upon receipt
copies of all notices of assessment or reassessment and tax bills affecting the
Property. Manager shall (i) pay such taxes, (ii) take full advantage of all
discounts available in connection with the payment thereof and (iii) promptly
send to Owner receipted copies of all tax bills, provided that Owner provides
Manager with all funds required to make such payments. Manager shall be
responsible for administering all tax appeals.

2.12 Construction Management. Manager shall advise Owner on
performance of construction, reconstruction and renovation work at the Property
and, at the request of Owner, shall act as construction manager with respect to
such work. Such service shall include, without limitation, coordination with the
Owner and Owner's architect of the planning of all work, obtaining of bids from
trade contractors, administration of all contracts and the performance thereof
by trade contractors and subcontractors and liaison with Owner, Owner's
architect and any tenants for whom work is being performed.

ARTICLE III

BANK ACCOUNTS

3.01 Operating Account. Manager shall deposit all rents and other
funds collected from the operation of the Property, including but not limited to
any and all advance funds in a special account (the "Operating Account") for the
Property in the name of Owner in a federally insured financial institution
designated or approved by Owner. Manager and Owner shall each be authorized
signatories on

10
<PAGE>

the Operating Account. Out of the Operating Account, Manager shall pay the
operating expenses of the Property and any other payments relative to the
Property as permitted by the terms of this Agreement. The balance in the
Operating Account shall be transferred at such times as may be designated by
Owner to Manager in writing from time to time, to an account of Owner at the
financial institution designated by Owner.

3.02 Security Deposits. Manager shall deposit tenant security deposits
in a special account in the name of Owner in a financial institution designated
by Owner. Manager and Owner shall each be authorized signatories on the account.
Manager shall maintain detailed records of all security deposits, which records
may be inspected by Owner's employees or appointees.

ARTICLE IV

BUDGETS AND EXPENDITURES

4.01 Business Plan. Within twenty (20) days after the Commencement
Date with respect to the first calendar year of the Term, and no later than
October 15th of each year during the Term with respect to any subsequent
calendar years (or at such other date as designated by Owner, but no more
frequently than once during each twelve month period), Manager shall prepare, in
the form specified in the Policy Manual, and submit to Owner for Owner's
approval a Business Plan (following Owner's approval, the "Approved Budgets")
for the management and operation of the Property and Building for the
forthcoming twelve month period which shall include an Operating Budget
(following Owner's approval, the "Approved Operating Budget") and a Capital
Budget (following Owner's approval, the "Approved Capital Budget"). Budget line
items shall include:

(a) costs of the gross salary and compensation, or pro rata share
thereof, including, but not limited to, payroll taxes, insurance,
workers' compensation and other benefits, of any of Manager's staff
whose full-time, on-site duties involve the day to day operation or
management of the Property;

(b) costs necessary for the management, operation, and maintenance
of the Property; and

11
<PAGE>

4.02 Expenses Paid from Operating Account. All expenditures
contemplated to be paid from the Operating Account are limited to the extent
that such costs and expenses are authorized by this Agreement and in the
Approved Budgets then in effect.

4.03 Insufficient Income. If at any time the cash in the Operating
Account shall not be sufficient to pay the bills and charges which have been or
may be incurred with respect to the Property and which are payable from the
Operating Account, Manager shall notify Owner immediately upon first projection
or awareness of a cash shortage or pending cash shortage.

4.04 Limitation on Payments. Under no circumstances shall Manager pay
or obligate Owner to pay, or otherwise incur any liability of any kind or nature
for, any cost or expense other than those expressly provided for and authorized
under the Approved Budgets in effect from time to time. Notwithstanding Owner's
approval of the Approved Capital Budget, no expenditure may be made for items
appearing thereon until Owner has authorized such expenditure.

ARTICLE V

INSURANCE AND INDEMNIFICATION

5.01 Insurance. Manager shall recommend to Owner the insurance
coverage it considers appropriate for the Property. Upon approval by Owner,
Manager shall be responsible for the placement of all insurance, adjustment of
any losses covered by such insurance and the institution of appropriate safety
procedures at the Property which will minimize insurance claims to the extent
possible. Throughout the Term, Manager shall maintain in full force and effect
the following kinds of insurance covering its operations on the Property, in
amounts and with coverages satisfactory to Owner, (with the insurance described
in (a) below to be maintained at Owner's expense and the insurance described in
(b), (c), (d) and (e) below to be maintained at Manager's expense):

(a) worker's compensation and employer's liability insurance,
covering only full time, on-site employees at the Property;

12
<PAGE>

(b) comprehensive general liability insurance, including coverage
for personal injury and coverage concerning the contractual liability
of Manager to Owner described in Section 5.04 herein, with Owner named
as an additional insured;

(c) comprehensive automobile liability insurance, when the
services to be performed require the use of a motor vehicle, with Owner
named as an additional insured;

(d) a fidelity bond, in the name or for the benefit of Owner, in
an amount of not less than $1,000,000.00, the coverage of which shall
include, but not be limited to, Manager and all employees of Manager
who handle any income derived from the Property, with Owner named as
loss payee; and

(e) worker's compensation and employer's liability insurance
covering Manager's employees not included in the insurance described in
(a) above, with Owner named as an additional insured.

5.02 Certificates and Policies of Insurance.

(a) Certificates of the insurance coverages as described above
shall be delivered to Owner on or before the Commencement Date,
evidencing that such insurance is in force, together with copies of the
policies (certified as true, correct, and complete by the insurer) of
insurance to which such certificates refer. Within fifteen (15)
calendar days prior to expiration of any such insurance coverage, new
certificates shall be delivered, certified as aforesaid, evidencing
renewal of such insurance coverage.

(b) All certificates must contain waiver of subrogation clauses
and must provide that if such policies are canceled or changed during
the period of coverage as cited therein in such manner as to affect the
insurance coverage, written notice will be mailed to Owner and Manager
by registered or certified mail delivered at least thirty (30) calendar
days prior to such cancellation or change (and such certificates shall
include no language absolving the issuer thereof from liability for its
failure so to provide such notice).

5.03 Owner's Liability Insurance. Owner agrees to carry comprehensive
general liability insurance and such other insurance

13
<PAGE>

as Owner may determine to be necessary for the protection of the interests of
Owner and Manager, the carrier and the amount of coverage in each policy to be
decided upon by Owner in Owner's reasonable judgment, or Owner may elect to
self-insure.

5.04 Manager's Responsibilities. Except to the extent Owner is
reimbursed under any insurance policy covering such risks (or would have been
reimbursed by an insurance policy except for the fact that Owner elects to
self-insure against such risks), Manager shall be liable to Owner for, and shall
indemnify and hold harmless Owner from, any and all claims, demands, causes of
action, debts, liabilities, judgments, damages and expense, including, without
limitation, costs and reasonable attorneys' fees in connection with the
enforcement of this indemnity (collectively, the "Claims"), which may be
incurred by or made against Owner arising out of (a) the gross negligence,
willful misconduct, fraud, breach of trust, illegal acts or intentional
misrepresentation of Manager or its employees, or (b) a material breach by
Manager or its employees of an express and clear provision of this Agreement;
provided however, Manager and its employees shall not be liable for, and shall
not be required to indemnify Owner from, any Claims caused by the acts or
omissions by Manager or its employees and reasonably believed in good faith by
the party so acting to be within the scope of the authority granted Manager or
any other party under this Agreement or under any contract or agreement
authorized hereby.

ARTICLE VI

COMPENSATION OF MANAGER

6.01 Management Fee.

(a) Owner agrees to pay Manager, and Manager agrees to accept as
full compensation for the services to be rendered to Owner hereunder
during the Term hereof, a sum (the "Management Fee") equal to five
percent (5%) of the "Gross Monthly Collections" (as defined below) from
the Property when, as, and only to the extent actually collected from
the Property. The Management Fee shall be payable monthly in arrears,
commencing upon the last day of the first month or partial month, as
the case may be, of the Term.

14
<PAGE>

(b) "Gross Monthly Collections" shall mean the total gross monthly
collections received from the Property as a result of rental of all or
any portion of the Property, excluding, however, security deposits,
payment of money by a tenant or any other person or entity to Owner or
Manager in consideration for or in conjunction with a security deposit,
fire loss proceeds, any Special Services, condemnation proceeds,
proceeds received by Owner in connection with the sale of any portion
of the Property or personal property located upon the Property, and the
refinancing of any indebtedness secured by a lien on any portion of the
Property or otherwise related to the operation of the Property.

ARTICLE VII

TERMINATION

7.01 Obligations Upon Termination. Upon termination for whatever
cause, Manager shall, not later than the effective date of termination of this
Agreement, deliver to Owner the original of all books, permits, plans, records,
leases, licenses, contracts and other documents pertaining to the Property and
their operation, all insurance policies, bills of sale or other documents
evidencing title or rights of Owner, and any and all records or documents,
whether or not enumerated herein, which are necessary or desirable for the
ownership and operation of the Property. Manager shall assign unexpired service
and supply contracts to Owner or parties designated by Owner. All personal
property (including, but not limited to, capital equipment, hardware, trade and
non-trade fixtures, materials and supplies) acquired pursuant to this Agreement,
whether paid for directly by Owner or by way of reimbursement to Manager, shall
become the property of Owner and shall remain at the Property after the
termination of this Agreement in accordance with its terms, unless Owner shall
request Manager to remove said property. The obligations set forth in this
paragraph shall be in addition to any and all other rights, liabilities and
obligations created under this Agreement and as provided by law.

7.02 Remedies. Owner's remedy to terminate this Agreement pursuant to
the terms of this Article VII shall not be exclusive, and in the event of any
default by Manager, the Owner shall be entitled to exercise any and all other
remedies and rights of Owner

15
<PAGE>

set forth herein or available at law or in equity (unless expressly waived in
writing by the Owner). The sole remedy of Manager in the event of wrongful
termination by Owner shall be to sue Owner for the loss of its Management Fee
during the applicable period. In no event shall Manager be entitled to the
recovery of special or consequential damages, nor shall Manager be entitled to
hold over at the Property after termination by Owner. Failure of Manager to
comply for any period with the provisions of Section 7.01 shall render Manager
liable to Owner for liquidated damages in the amount of three (3) times the
Management Fee which would have been payable to Manager during such period had
this Agreement not been terminated.

ARTICLE VIII

MISCELLANEOUS PROVISIONS

8.01 Headings. The headings used herein are for purposes of
convenience only and should not be used in construing the provisions hereof.

8.02 Notice. Any notice, demand or communication required or permitted
hereunder shall be given in writing and shall be deemed received (a) immediately
upon delivery in person; (b) three (3) days after being deposited in the U.S.
mail by certified mail, postage prepaid; or (c) the first business day after
being deposited with a recognized overnight courier service (which courier
services shall include, by way of illustration but not limitation, Federal
Express). Each such notice shall be addressed to the party to receive such
communication at the following address:

If to Owner:

Continental Mortgage and Equity Trust
10670 North Central Expressway
Suite 600
Dallas, Texas 75231
Attention: President

16
<PAGE>

If to Manager:

Carmel Realty Services, Ltd.
C/o Basic Capital Management, Inc.
10670 North Central Expressway
Suite 640
Dallas, Texas 75231
Attention: President

or other address as any party may hereafter designate by written notice to the
other parties hereto.

8.03 Relationship of the Parties. As to Owner, Manager is an
independent contractor hired by Owner pursuant to the terms hereof. Nothing
contained in this Agreement, nor any acts of the parties hereto, shall be deemed
or construed by the parties hereto, or either of them, or any third party, to
create the relationship of principal and agent or a partnership or a joint
venture between the parties hereto.

8.05 Assignment. Owner shall have the right, at any time and from time
to time, in its sole discretion, to assign its rights and obligations hereunder
to a third party acquiring the Property provided that any such third party
enters into a written agreement assuming Owner's obligations hereunder. Manager
may not assign its rights and obligations hereunder.

8.06 Legal Representatives, Successors, Transfers and Assigns. This
Agreement shall be binding upon and inure to the benefit of Owner and Manager
and their respective legal representatives, successors, transfers and assigns
(but nothing contained herein shall be interpreted to permit any assignment not
otherwise expressly permitted by another provision of this Agreement).

8.07 Attorneys' Fees. In the event of any controversy, claim or action
being filed respecting this Agreement or in connection with the Property, the
prevailing party shall be entitled, in

17
<PAGE>

addition to all other expenses, costs or damages, to recover its reasonable
attorneys' fees actually incurred, at prevailing hourly rates of the attorney or
law firm in question.

8.08 Time of the Essence. Time is of the essence of this Agreement.

8.09 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE WHERE THE PROPERTY IS LOCATED.

8.10 Severability. Every provision of this Agreement is intended to be
severable. If any term or provision hereof is illegal for any reason whatsoever,
such provision shall be severed from the Agreement and shall not affect the
validity of the remainder of this Agreement.

8.11 No Interest in Condemnation or Insurance Proceeds. Manager shall
not have any interest in or claim to any condemnation proceeds for the Property
awarded to Owner or any insurance proceeds paid to Owner with respect to any
casualty to the Property; provided, however, that nothing contained herein shall
prevent or be deemed to prevent Manager from pursuing or seeking an award
separate from Owner's award in any condemnation proceeding or a separate claim
under any insurance policy.

8.13 Owner's Operating Procedures. Manager shall comply with such
reasonable rules and regulations governing operations of the Property as Owner
shall from time to time establish and make known to Manager.

8.14 Asbestos and Toxic Wastes. Manager shall not cause any toxic
wastes to be placed upon the Property. Manager covenants that it will use
reasonable efforts to prevent the storage, emission or disposal of any
dangerous, toxic or hazardous pollutants of any sort on the Property. Manager
hereby indemnifies

18
<PAGE>

and holds harmless Owner from and against any loss, cost, damage or liability,
including, but not limited to, court costs and attorneys' fees, in connection
with the occurrence of any environmental hazard on the Property (as listed
above) resulting from its negligence.

8.15 Other Engagements. Owner acknowledges and consents to the fact
that Manager may be engaged in providing to other owners of other buildings in
the area of the Building, the same or similar services which Manager is
providing herein and that such engagement shall not be or be deemed to be a
conflict of interest or a breach of Manager's fiduciary duty to Owner.

8.16 Subordination. Manager shall not have any right or interest in
the Property nor any claim of lien with respect thereto. This Agreement and the
rights of Manager hereunder are and shall be subordinate to any deed to secure
debt, mortgage, deed of trust, security agreement, or other security instrument
now existing or hereafter made encumbering the Property and executed and
delivered by Owner to secure any indebtedness of Owner with respect to the
Property. Manager does hereby agree that this Agreement and all of the rights,
duties, and liabilities of Manager hereunder will be terminated as to the
Property if the holder of any such deed to secure debt, mortgage, deed of trust,
security agreement or other security instrument succeeds to all of the
beneficial right, title, and interest of Owner in and to the Property by virtue
of the appointment of a receiver, foreclosure, acceptance of a deed in lieu of
foreclosure, or otherwise.

8.17 Delegation of Duties. It is specifically agreed that Manager at
Manager's own expense may engage any entity or entities of its choice for the
performance of day-to-day management and operation of the Property as Manager
deems necessary or appropriate; provided, however, that Manager shall be
responsible for continual supervision of any such subagent so as to ensure the
performance of such delegated duties by such subagent in a professional manner
in accordance with this Agreement; and further provided that Manager may not
delegate its responsibilities with respect to (i) developing a comprehensive
accounting system and conducting internal audits under Section 2.07, (ii)
reviewing service contracts under Section 2.09, (iii) administering property
taxes under Section 2.11, (iv) performing construction management services under
Section 2.12 or (v) administering insurance and workplace safety procedures
under Section 5.01.

19
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed and delivered, as of the day and year first above written.

"OWNER"

CONTINENTAL MORTGAGE AND EQUITY TRUST,
a California Real Estate Investment Trust

By: /s/ RANDALL M. PAULSON
--------------------------------------
Name: Randall M. Paulson
Title: President

Attest: /s/ CHERYL WEAVER
---------------------------------
Cheryl Weaver
Its: Assistant Secretary

"MANAGER"

CARMEL REALTY SERVICES, LTD., a
Texas partnership
By Its General Partner
BASIC CAPITAL MANAGEMENT, INC.,
a Nevada corporation

By: /s/ THOMAS A. HOLLAND
--------------------------------------
Name: Thomas A. Holland
Title: Executive Vice President

Attest: /s/ CHERYL WEAVER
----------------------------------
Cheryl Weaver
Its: Assistant Secretary

(CORPORATE SEAL)

20
<PAGE>

EXHIBIT "A"
02/01/98

CONTINENTAL MORTGAGE AND EQUITY TRUST COMMERCIAL PROPERTIES
ZIP
NO. PROPERTY TYPE ENTITY METRO AREA (CITY) ST ADDRESS CODE
====================================================================================================================================

<S> <C> <C> <C> <C> <C> <C>
1 AMOCO BLDG. OFFICE CMET NEW ORLEANS LA 1340 POYDRAS ST. 70112
2 BROOKFIELD CORPORATE CENTER OFF/IND CMET WASH. D.C. (CHANITLLY) VA 4431 BROOKFIELD CORPORATE DR.
3 BAY PLAZA OFFICE CMET TAMPA FL 9325 BAY PLAZA BLVD. 33619
4 3400 CARLISLE OFFICE CMET DALLAS TX 3400 CARLISLET ST. 75204
5 CENTRAL FREIGHT IND CMET DALLAS TX 3200 IRVING BLVD. 75247
6 DURHAM CENTRE OFFICE CMET DURHAM NC 300 W. MORGAN STREET 27701
7 INDCON - 1610 SOUTHLAND IND CMET/NIRT ATLANTA GA 1610 SOUTHLAND CIRCLE 30093
8 INDCON - 4050 GETWELL IND CMET/NIRT MEMPHIS TN 4050 GETWELL 38112
9 INDCON - 5000 SPACE CENTER IND CMET/NIRT SAN ANTONIO TX 5000-5004 SPACE CENTER DR 78218
10 INDCON - 5360 TULANE IND CMET/NIRT ATLANTA GA 5360 TULANE DRIVE 30093
11 INDCON - 5700 TULANE IND CMET/NIRT ATLANTA GA 5700 TULANE DRIVE 30093
12 KELLY INDUSTRIAL - 108TH ST IND CMET FORT WORTH (GRAND PRAIRIE) TX 1141 108TH STREET 76011
13 KELLY INDUSTRIAL - 4810-4836 CASH IND CMET DALLAS TX 4810 - 4836 CASH ROAD 75247
14 KELLY INDUSTRIAL - 4852-4908 CASH IND CMET DALLAS TX 4852 - 4908 CASH ROAD 75247
15 KELLY INDUSTRIAL - HILLTOP IND CMET DALLAS (RICHARDSON) TX 301 HILLTOP DR. 75081
16 KELLY INDUSTRIAL - PINEWOOD IND CMET ARLINGTON TX 3011 PINEWOOD DRIVE 76010
17 KELLY INDUSTRIAL - ZODIAC IND CMET DALLAS TX 10310 ZODIAC DRIVE 75247
18 McLEOD COMMERCE CENTER IND CMET ORLANDO FL 4065 - 4085 L.B. McLEOD RD. 32811
19 NASA OFFICE BUILDING OFFICE CMET HOUSTON TX 1120 NASA ROAD 77058
20 NORTHGATE DISTRIBUTION CENTER IND CMET ATLANTA (MARIETTA) GA 1100 WILLIAMS DRIVE 30066
21 OGDEN INDUSTRIAL PARK OFF/IND CMET OGDEN UT 2675 INDUSTRIAL PARK DR. 84401
22 PINEMONT PROFESSIONAL BLDG. OFFICE CMET HOUSTON TX 6110 PINEMONT DRIVE 77092

</TABLE>

21
<PAGE>

<TABLE>
<CAPTION>
ZIP
NO. PROPERTY TYPE ENTITY METRO AREA (CITY) ST ADDRESS CODE
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
23 PROMENADE S/C RETAIL CMET DENVER CO 2200 COUNTY LINE RD. 80126
24 RIO PINAR S/C RETAIL CMET ORLANDO FL 567 S. CHICKASAW TRAIL 32825
25 SHADY TRAIL IND CMET DALLAS TX 10828-44 SHADY TRAIL 75220
26 SULLYFIELD COMMERCE CENTER OFF/IND CMET WASH. D.C. (CHANITLLY) VA 14320-14360 SULLYFIELD CIRCLE 22021
27 WESTGROVE AIR PLAZA RETAIL CMET ADDISON TX 4570 WESTGROVE DRIVE 75248

</TABLE>

<PAGE>

EXHIBIT 10.6
BROKERAGE AGREEMENT
BETWEEN
TRANSCONTINENTAL REALTY INVESTORS, INC.
AND
CARMEL REALTY, INC.

THIS BROKERAGE AGREEMENT dated as of February 11, 1997, between
Transcontinental Realty Investors, Inc., a Nevada corporation, (the "Company"),
and Carmel Realty, Inc. (the "Broker"), a Texas corporation.

WITNESSETH:
WHEREAS:

1. The Company is an active real estate investment trust with funds
available for investment primarily in the acquisition of real estate.

2. The Company owns a diversified portfolio of real estate which includes
properties which by reason of their size, location and quality, require special
efforts to sell and the Company desires to sell certain of such property and
acquire additional property from time to time.

3. The Broker and its principal officers have extensive experience in the
sale and purchase of real estate assets.

4. The Broker is duly registered as a real estate broker, and is duly
qualified to procure the listing of real estate for sale, lease or rental, and
prospective purchasers, lessees, and renters therefor, and has the good will of,
and a reputation for dealing with, the public, and also maintains an office,
properly equipped and staffed, suitable to serving as a real estate broker.
<PAGE>

5. In consideration for the non-exclusive opportunity offered hereby, the
Broker is willing to make an effort to sell any of the Company's properties,
regardless of the size, quality or location of such properties.

NOW THEREFORE, in consideration of the premises and of the mutual covenants
herein contained, the parties agree as follows:

1. PROPERTY SALES. The Company shall make available to the Broker on a
non-exclusive basis information on real estate assets the Company desires to
sell and Broker shall work diligently and with its best efforts to sell such
real estate.

2. PROPERTY ACQUISITIONS. Broker shall attempt to locate real estate
assets suitable for purchase by the Company within the parameters set forth by
the Company from time to time.

3. NO PARTNERSHIP OR JOINT VENTURE. The Company and the Broker are not
partners or joint venturers with each other, and nothing herein shall be
construed so as to make them such partners or joint venturers or impose any
liability as such on either of them.

4. INDEPENDENT CONTRACTOR. The Broker will be performing professional
services for the Company as an independent contractor and the Broker will not be
subject to the will and control of the Company nor will the Company have the
right to control either the method and the result of the services so performed.
The Company will not be held responsible for the collection and payment of taxes
or contributions of any nature on behalf of the Broker including, but not by way
of limitation, contributions on behalf of

2
<PAGE>

the Broker for Federal Social Security (F.I.C.A.) for Federal and State
Unemployment Compensation, for State Workman's Compensation Insurance, for State
Real Estate Commission Registration, for State, County and Municipal
Occupational Licensing or for insurance, annuity, or retirement program in which
the Broker may participate.

5. BROKERAGE SERVICES. The Broker will perform professional services as a
Registered Real Estate Broker, and the Broker will devote sufficient time and
services on behalf of the Company to accomplish the mutual purposes of the
parties.

6. HOLD HARMLESS. The Broker will hold the Company harmless against all
suits, claims, and obligations which the Broker may incur in performing services
as an independent contractor, and the Broker shall have no right to bind,
contract, or obligate the Company in the performance of services.

7. LEGAL COMPLIANCE. It is understood that the Broker will abide by all
laws, ethical practices and regulations promulgated by the applicable state real
estate commissions or other regulatory bodies.

8. PURCHASE COMMISSION. For locating and negotiating the lease or purchase
of any real property by the Company, the Broker is to receive a purchase
commission in accordance with the fee schedule attached as Exhibit A to this
Agreement. The aggregate of each purchase price of each property (including the
purchase commission paid to the Broker and the Company's advisor) may not exceed
such property's appraised value at acquisition. Any commission which is

3
<PAGE>

paid to the Broker by the seller shall be credited against the commission to be
paid by the Company hereunder.

9. REAL ESTATE SALES COMMISSION. For the sale of each property, the Broker
is to receive a real estate sales commission in accordance with the fee schedule
attached as Exhibit A to this Agreement.

10. EXPENSES OF THE BROKER. Without regard to the amount of compensation
received hereunder by the Broker, the Broker shall bear the following expenses:

(b) advertising and promotional expenses incurred in seeking
investment opportunities for the Company;

(d) miscellaneous administrative expenses relating to performance by
the Broker of its functions hereunder.

4
<PAGE>

The Broker shall have a duty to present to the Company any investment
opportunity that comes to the Broker or any of its affiliates if such
opportunity is within the Company's investment policies.

12. TERM; TERMINATION OF AGREEMENT. This Agreement shall continue in force
for a period of twelve months, and thereafter it may be renewed from year to
year, subject to the approval of a majority of the Directors of the Company who
are not affiliated with the Broker. Notice of renewal shall be given in writing
by the Directors to the Broker not less than 60 days before the expiration of
this Agreement or of any extension thereof. Notwithstanding any other provision
to the contrary, this Agreement may be terminated for any reason without penalty
upon written notice by the Company to the Broker or written notice by the Broker
to the Company, in the former case by the vote of a majority of the Directors
who are not affiliates of the Broker.

14. ASSIGNMENT. This Agreement shall not be assigned by the Broker without
the prior consent of the Company. The Company may terminate this Agreement in
the event of its assignment by the Broker without the prior consent of the
Company. Such an assignment or any other assignment of this Agreement shall
bind the assignee hereunder in the same manner as the Broker is bound

5
<PAGE>

hereunder. This Agreement shall not be assignable by the Company without the
consent of the Broker, except in the case of assignment by the Company to a
corporation, association, trust, or other organization that is a successor to
the Company. Such successor shall be bound hereunder and by the terms of said
assignment in the same manner as the Company is bound hereunder.

15. DEFAULT, BANKRUPTCY, ETC. At the option solely of the Directors, this
Agreement shall be and become terminated immediately upon written notice of
termination from the Directors to the Broker if any of the following events
shall occur:

(a) If the Broker shall violate any provision of this Agreement, and
after notice of such violation shall not cure such default within 30 days; or

(b) If the Broker shall be adjudged bankrupt or insolvent by a court
of competent jurisdiction, or an order shall be made by a court of competent
jurisdiction for the appointment of a receiver, liquidator, or trustee of the
Broker or of all or substantially all of its property by reason of the
foregoing, or approving any petition filed against the Broker for its
reorganization, and such adjudication or order shall remain in force or unstayed
for a period of 30 days; or

6
<PAGE>

its property, or shall make a general assignment for the benefit of its
creditors, or shall admit in writing its inability to pay its debts generally,
as they become due.

The Broker agrees that if any of the events specified in subsections (b)
and (c) of this Section shall occur, it will give written notice thereof to the
Directors within seven days after the occurrence of such event.

17. MISCELLANEOUS. The Broker assumes no responsibility under this
Agreement other than to render the services called for hereunder in good faith,
and shall not be responsible for any action of the Company in following or
declining to follow any advice or recommendations of the Broker. Neither the
Broker nor any of its shareholders, directors, officers, or employees shall be
liable to the Company, the Directors, the holders of securities of the Company
or to any successor or assign of the Company except by reason of acts
constituting bad faith, willful misfeasance, gross negligence, or reckless
disregard of their duties.

18. NOTICES. Any notice, report, or other communication required or
permitted to be given hereunder shall be in writing unless some other method of
giving such notice, report, or other communication is accepted by the party to
whom it is given, and

7
<PAGE>

shall be given by being delivered at the following addresses of the parties
hereto:

The Company:

Transcontinental Realty Investors, Inc.
10670 North Central Expressway
Suite 600
Dallas, Texas 75231
Attention: President

The Broker:

Carmel Realty, Inc.
10670 North Central Expressway
Suite 600
Dallas, Texas 75231
Attention: Chief Executive Officer

Either party may at any time give notice in writing to the other party of a
change of its address for the purpose of this Section.

19. HEADINGS. The section headings hereof have been inserted for
convenience of reference only and shall not be construed to
affect the meaning, construction, or effect of this Agreement.

21. EXECUTION. This instrument is executed and made on behalf of the
Company by an officer of the Company, not individually but solely as an officer,
and the obligations under this Agreement are not binding upon, nor shall resort
be had to the private property of, any of the Directors, stockholders, officers,
employees, or

8
<PAGE>

agents of the Company personally, but bind only the Company property.

IN WITNESS WHEREOF, TRANSCONTINENTAL REALTY INVESTORS, INC. and CARMEL
REALTY, INC., by their duly authorized officers, have signed these presents all
as of the day and year first above written.

TRANSCONTINENTAL REALTY INVESTORS, INC.

By: /s/ Randall M. Paulson
-----------------------
Randall M. Paulson
President

CARMEL REALTY, INC.

By: /s/ Bruce A. Endendyk
----------------------
Bruce A. Endendyk
President

9
<PAGE>

EXHIBIT A

FEE SCHEDULE

The following fees shall be paid by the Company in accordance with the
Brokerage Agreement with Carmel Realty, Inc.

Maximum fee of 5% on the first $2,000,000 of any purchase
or sale transaction of which no more than 4% would be paid
to Carmel Realty, Inc. or affiliates;

Maximum fee of 4% on transaction amounts between $2,000,000 -
$5,000,000 of which no more than 3% would be paid to Carmel
Realty, Inc. or affiliates;

Maximum fee of 3% on transaction amounts between $5,000,000 -
$10,000,000 of which no more than 2% would be paid to Carmel
Realty, Inc. or affiliates; and

Maximum fee of 2% on transaction amounts in excess of
$10,000,000 of which no more than 1-1/2% would be paid to
Carmel Realty, Inc. or affiliates.

<PAGE>

EXHIBIT 10.7

Residential

MANAGEMENT AGREEMENT

BETWEEN

TRANSCONTINENTAL REALTY INVESTORS, INC.
("OWNER")

AND

CARMEL REALTY SERVICES, LTD.
("AGENT")

DATED AS OF FEBRUARY 1, 1998

1
<PAGE>

MANAGEMENT AGREEMENT

Recitals

Article I - Appointment; Term of Agreement
1.01 Appointment
1.02 Term
1.03 Termination For Cause

Article III - Bank Accounts
3.01 Operating Account
3.02 Security Deposits

Article IV - Budgets and Expenditures
4.01 Business Plan
4.02 Expenses Paid from Operating Account
4.03 Insufficient Income
4.04 Limitation on Payments

Article V - Indemnification and Insurance
5.01 Insurance
5.02 Certificates and Policies of Insurance
5.03 Owner's Liability Insurance
5.04 Agent's Responsibilities

Article VI - Compensation of Agent and Management Facilities
6.01 Agent's Fee

Article VII - Termination

2
<PAGE>

7.01 Obligations Upon Termination
7.02 Remedies

Signatures

Exhibit "A" - Property Description

3
<PAGE>

MANAGEMENT AGREEMENT

THIS MANAGEMENT AGREEMENT (the "Agreement") is made and entered into as
of the 1st day of February, 1998, by and between TRANSCONTINENTAL REALTY
INVESTORS, INC., a Nevada corporation ("Owner") and CARMEL REALTY SERVICES,
LTD., a Texas partnership ("Agent").

W I T N E S S E T H:

WHEREAS, the Land, the Building and any parking facility or structure
located on the Land are sometimes collectively referred to herein as the
"Property";

WHEREAS, this Agreement is entered into for the purpose of setting
forth the terms on which Agent will manage the Property.

4
<PAGE>

ARTICLE I

APPOINTMENT; TERM OF AGREEMENT

1.01 Appointment. Subject to the terms and conditions hereof, Owner
hereby appoints Agent and delegates to Agent the sole and exclusive right to
manage, supervise and operate the Property, and Agent hereby accepts its
appointment.

ARTICLE II

RESPONSIBILITIES OF AGENT

5
<PAGE>

supervise, at the expense of Owner, all maintenance and operational activities
of the Property, including, but not limited to, the following:

(a) providing any necessary repairs to the Property and a preventative
maintenance program for all mechanical, electrical and plumbing systems and
equipment on the Property;

(b) contracting in the name of Owner for gas, electricity, water and
such other utility services to be furnished to the Property as Agent deems
appropriate;

(d) any other activity expedient to the operation of the Property.

2.03 Employees. (a) All matters pertaining to the employment,
supervision, compensation, promotion and discharge of employees who are managing
and operating the Property are the responsibility of Agent, and Agent shall be
in all respects the employer of such employees.

(c) In the event that Agent's employees are engaged to work in
connection with other properties than the Property, wages and other expenses
with respect to such work shall be allocated between properties, which
allocations shall be subject to review by Owner.

2.04 Enforcement of Leases. Agent shall use diligent efforts to enforce
the terms of all tenant leases and to collect all rents (including tenants'
obligations to pay a portion of operating expenses, taxes and common area
maintenance charges) and other charges which may become due at any time from any
tenant or from others for services provided in connection with or for the use of
the Property, or any portion thereof. All monies so collected shall be deposited
in the "Operating Account" (as that term is defined in Section 3.01 herein).

6
<PAGE>

2.05 Compliance with Leases, Laws and Mortgages. Agent shall fulfill
all the obligations of the Owner as landlord under leases pertaining to the
Property which shall, however, be in the name of and executed by Owner as
landlord. Agent shall operate the Property in compliance with federal, state and
local laws, ordinances, regulations and orders and the terms of the local Board
of Fire Underwriters or similar body, any space lease, ground lease, and lien or
security instrument affecting or encumbering the Property or Building; and Agent
shall immediately provide Owner with written notice of any violation or default
pursuant to any of the foregoing and shall remedy same. From the Operating
Account, Agent shall make payments due to ground lessors or mortgagees of the
Property.

2.06 Notification to Owner. In addition to all other notices provided
for herein, Agent shall, to the extent of its knowledge, promptly notify Owner
of all material adverse matters concerning the Property, including, without
limitation:

(a) all lawsuits, condemnation proceedings, zoning or any other
governmental orders, notices, actions or threats that may adversely affect the
Property;

(b) any major and material claim made by a tenant that Agent or Owner
has failed to perform any obligations of Owner or Agent under any lease or
agreement to which the Agent or Owner is a party;

(c) the occurrence of any fire or other casualty on or about the
Property or any other personal injury or property damage (such notice to be in
compliance with the requirements of all insurance policies), and Agent shall
permit insurance adjustors to view damages before repairs are started except for
emergency situations;

(d) any requirement of any insurance carrier or of any governmental
agency with respect to the Property;

(e) any material offers to purchase the Property; and

7
<PAGE>

either (i) is prohibited or otherwise regulated by any now or hereafter existing
local, state, or federal statute, ordinance, rule, regulation, or the like or
(ii) poses or may pose a risk to the health, safety or physical well-being of
persons.

2.08 Reports and Reconciliation of Accounts. On or before the tenth
(10th) day of each month during the Term or as otherwise directed by Owner,
Agent shall provide to Owner such reports pertaining to the Property as are
required by Owner in the form as specified in the Policy Manual.

2.09 Contracts. (a) Unless otherwise requested by Owner, all contracts
relating to the operation of the Property shall be in the name of and executed
by Agent on behalf of Owner, subject, however, to Owner's prior written approval
of the terms and conditions of all such contracts, and all of such contracts
shall be terminable upon the giving of thirty (30) days written notice.

(b) Agent may not enter into contracts pertaining to the Property with
parties affiliated with, under the common control of or controlled by Agent
unless specifically consented to in writing by Owner. Unless specifically
consented to in writing by Owner, personnel of Agent may not be used to provide
services which could be provided by outside personnel or agencies (including,
but not limited to, landscaping and HVAC maintenance).

8
<PAGE>

(c) Agent shall use reasonable efforts to require that each independent
contractor indemnify and save harmless Owner and any partners of Owner and its
officers, directors, agents, employees, and subsidiaries from and against all
liability, claims and demands on account of injury to persons (including death)
and damage to property arising out of or resulting from the willful misconduct
or gross negligence of the independent contractor, or employees or agents of the
independent contractor, in the performance of the contract or work by the
independent contractor, its employees, or agents, or from the independent
contractor's property. Agent shall also use reasonable efforts to induce the
independent contractor and such agents to agree that such independent contractor
and such agents shall, at its expense, (i) defend any and all suits or actions
against Owner or a partner of Owner and/or Agent brought as a result of any such
willful misconduct or gross negligence, (ii) pay all reasonable attorneys' fees
and all other expenses in connection therewith, and (iii) promptly discharge any
judgments arising therefrom. Before engaging any independent contractor, Agent
shall cause each such independent contractor to provide Owner with evidence of
any insurance Owner, in its reasonable judgment, deems that such independent
contractor should carry.

(d) Agent shall be specifically responsible for the periodic review of
all laundry, cable television and similar service contracts which may be in
effect at the Property.

2.11 Construction Management. Agent shall advise Owner on performance
of construction, reconstruction and renovation work at the Property and, at the
request of Owner, shall act as construction manager with respect to such work.
Such service shall include, without limitation, coordination with the Owner and
Owner's architect of the planning of all work, obtaining of bids from trade
contractors, administration of all contracts and the performance thereof by
trade contractors and subcontractors and

9
<PAGE>

liaison with Owner, Owner's architect and any tenants for whom work is being
performed.

ARTICLE III

BANK ACCOUNTS

3.02 Security Deposits. Agent shall deposit tenant security deposits in
a special account in the name of Owner in a financial institution designated by
Owner. Agent and Owner shall each be authorized signatories on the account.
Agent shall maintain detailed records of all security deposits, which records
may be inspected by Owner's employees or appointees.

ARTICLE IV

BUDGETS AND EXPENDITURES

10
<PAGE>

Building for the forthcoming twelve month period which shall include an
Operating Budget (following Owner's approval, the "Approved Operating Budget")
and a Capital Budget (following Owner's approval, the "Approved Capital
Budget"). Budget line items shall include:

(b) costs necessary for the management, operation, and maintenance of
the Property; and

4.02 Expenses Paid from Operating Account. All expenditures
contemplated to be paid from the Operating Account are limited to the extent
that such costs and expenses are authorized by this Agreement and in the
Approved Budgets then in effect.

4.03 Insufficient Income. If at any time the cash in the Operating
Account shall not be sufficient to pay the bills and charges which have been or
may be incurred with respect to the Property and which are payable from the
Operating Account, Agent shall notify Owner immediately upon first projection or
awareness of a cash shortage or pending cash shortage.

11
<PAGE>

ARTICLE V

INSURANCE AND INDEMNIFICATION

5.01 Insurance. Agent shall recommend to the Owner the insurance
coverage it considers appropriate for the Property. Upon approval by Owner,
Agent shall be responsible for the placement of all insurance, adjustment of any
losses covered by such insurance and the institution of appropriate safety
procedures at the Property which will minimize insurance claims to the extent
possible. Throughout the Term, Agent shall maintain in full force and effect the
following kinds of insurance covering its operations on the Property, in amounts
and with coverages satisfactory to Owner, (with the insurance described in (a)
below to be maintained at Owner's expense and the insurance described in (b),
(c), (d) and (e) below to be maintained at Agent's expense):

(a) worker's compensation and employer's liability insurance, covering
only full time, on-site employees at the Property;

(b) comprehensive general liability insurance, including coverage for
personal injury and coverage concerning the contractual liability of Agent to
Owner described in Section 5.04 herein, with Owner named as an additional
insured;

(c) comprehensive automobile liability insurance, when the services to
be performed require the use of a motor vehicle, with Owner named as an
additional insured;

(d) a fidelity bond, in the name or for the benefit of Owner, in an
amount of not less than $1,000,000.00, the coverage of which shall include, but
not be limited to, Agent and all employees of Agent who handle any income
derived from the Property, with Owner named as loss payee; and

(e) worker's compensation and employer's liability insurance covering
Agent's employees not included in the insurance described in (a) above, with
Owner named as an additional insured.

5.02 Certificates and Policies of Insurance. (a) Certificates of the
insurance coverages as described above shall be delivered to Owner on or before
the Commencement Date, evidencing that such insurance is in force, together with
copies of the

12
<PAGE>

policies (certified as true, correct, and complete by the insurer) of insurance
to which such certificates refer. Within fifteen (15) calendar days prior to
expiration of any such insurance coverage, new certificates shall be delivered,
certified as aforesaid, evidencing renewal of such insurance coverage.

(b) All certificates must contain waiver of subrogation clauses and
must provide that if such policies are canceled or changed during the period of
coverage as cited therein in such manner as to affect the insurance coverage,
written notice will be mailed to Owner and Agent by registered or certified mail
delivered at least thirty (30) calendar days prior to such cancellation or
change (and such certificates shall include no language absolving the issuer
thereof from liability for its failure so to provide such notice).

13
<PAGE>

authority granted Agent or any other party under this Agreement or under any
contract or agreement authorized hereby.

ARTICLE VI

COMPENSATION OF AGENT

6.01 Management Fee. (a) Owner agrees to pay Agent, and Agent agrees to
accept as full compensation for the services to be rendered to Owner hereunder
during the Term hereof, a sum (the "Management Fee") equal to five percent (5%)
of the "Gross Monthly Collections" (as defined below) from the Property when,
as, and only to the extent actually collected from the Property. The Management
Fee shall be payable monthly in arrears, commencing upon the last day of the
first month or partial month, as the case may be, of the Term.

(b) "Gross Monthly Collections" shall mean the total gross monthly
collections received from the Property as a result of rental of all or any
portion of the Property, excluding, however, security deposits, payment of money
by a tenant or any other person or entity to Owner or Agent in consideration for
or in conjunction with a security deposit, fire loss proceeds, condemnation
proceeds, proceeds received by Owner in connection with the sale of any portion
of the Property or personal property located upon the Property, and the
refinancing of any indebtedness secured by a lien on any portion of the Property
or otherwise related to the operation of the Property.

ARTICLE VII

TERMINATION

14
<PAGE>

whether or not enumerated herein, which are necessary or desirable for the
ownership and operation of the Property. Agent shall assign unexpired service
and supply contracts to Owner or parties designated by Owner. All personal
property (including, but not limited to, capital equipment, hardware, trade and
non-trade fixtures, materials and supplies) acquired pursuant to this Agreement,
whether paid for directly by Owner or by way of reimbursement to Agent, shall
become the property of Owner and shall remain at the Property after the
termination of this Agreement in accordance with its terms, unless Owner shall
request Agent to remove said property. The obligations set forth in this
paragraph shall be in addition to any and all other rights, liabilities and
obligations created under this Agreement and as provided by law.

7.02 Remedies. Owner's remedy to terminate this Agreement pursuant to
the terms of this Article VII shall not be exclusive, and in the event of any
default by Agent, the Owner shall be entitled to exercise any and all other
remedies and rights of Owner set forth herein or available at law or in equity
(unless expressly waived in writing by the Owner). The sole remedy of Agent in
the event of wrongful termination by Owner shall be to sue Owner for the loss of
its Management Fee during the applicable period. In no event shall Agent be
entitled to the recovery of special or consequential damages, nor shall Agent be
entitled to hold over at the Property after termination by Owner. Failure of
Agent to comply for any period with the provisions of Section 7.01 shall render
Agent liable to Owner for liquidated damages in the amount of three (3) times
the Management Fee which would have been payable to Agent during such period had
this Agreement not been terminated.

ARTICLE VIII

MISCELLANEOUS PROVISIONS

8.01 Headings. The headings used herein are for purposes of convenience
only and should not be used in construing the provisions hereof.

8.02 Notice. Any notice, demand or communication required or permitted
hereunder shall be given in writing and shall be deemed received (a) immediately
upon delivery in person; (b) three (3)

15
<PAGE>

days after being deposited in the U.S. mail by certified mail, postage prepaid;
or (c) the first business day after being deposited with a recognized overnight
courier service (which courier services shall include, by way of illustration
but not limitation, Federal Express). Each such notice shall be addressed to the
party to receive such communication at the following address:

If to Owner:

Transcontinental Realty Investors, Inc.
10670 North Central Expressway
Suite 600
Dallas, Texas 75231
Attention: President

If to Agent:

Carmel Realty Services, Ltd.
c/o Basic Capital Management, Inc.
10670 North Central Expressway
Suite 640
Dallas, Texas 75231
Attention: President

or other address as any party may hereafter designate by written notice to the
other parties hereto.

8.03 Relationship of the Parties. Agent is an independent contractor
hired by Owner pursuant to the terms hereof. Nothing contained in this
Agreement, nor any acts of the parties hereto, shall be deemed or construed by
the parties hereto, or either of them, or any third party, to create the
relationship of principal and agent or a partnership or a joint venture between
the parties hereto.

16
<PAGE>

8.05 Assignment. Owner shall have the right, at any time and from time
to time, in its sole discretion, to assign its rights and obligations hereunder
to a third party acquiring the Property provided that any such third party
enters into a written agreement assuming Owner's obligations hereunder. Agent
may not assign its rights and obligations hereunder.

8.06 Legal Representatives, Successors, Transfers and Assigns. This
Agreement shall be binding upon and inure to the benefit of Owner and Agent and
their respective legal representatives, successors, transfers and assigns (but
nothing contained herein shall be interpreted to permit any assignment not
otherwise expressly permitted by another provision of this Agreement).

8.08 Time of the Essence. Time is of the essence of this Agreement.

8.09 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE WHERE THE PROPERTY IS LOCATED.

8.10 Severability. Every provision of this Agreement is intended to be
severable. If any term or provision hereof is illegal for any reason whatsoever,
such provision shall be severed from the Agreement and shall not affect the
validity of the remainder of this Agreement.

17
<PAGE>

8.13 Owner's Operating Procedures. Agent shall comply with such
reasonable rules and regulations governing operations of the Property as Owner
shall from time to time establish and make known to Agent.

8.14 Asbestos and Toxic Wastes. Agent shall not cause any toxic wastes
to be placed upon the Property. Agent covenants that it will use reasonable
efforts to prevent the storage, emission or disposal of any dangerous, toxic or
hazardous pollutants of any sort on the Property. Agent hereby indemnifies and
holds harmless Owner from and against any loss, cost, damage or liability,
including, but not limited to, court costs and attorneys' fees, in connection
with the occurrence of any environmental hazard on the Property (as listed
above) resulting from its negligence.

8.15 Other Engagements. Owner acknowledges and consents to the fact
that Agent may be engaged in providing to other owners of other buildings in the
area of the Building, the same or similar services which Agent is providing
herein and that such engagement shall not be or be deemed to be a conflict of
interest or a breach of Agent's fiduciary duty to Owner.

18
<PAGE>

Property by virtue of the appointment of a receiver, foreclosure, acceptance of
a deed in lieu of foreclosure, or otherwise.

8.17 Delegation of Duties: It is specifically agreed that Agent at
Agent's own expense may engage any entity or entities of its choice for the
performance of day-to-day management and operation of the Property as Agent
deems necessary or appropriate; provided, however, that Agent shall be
responsible for continual supervision of any such subagent so as to ensure the
performance of such delegated duties by such subagent in a professional manner
in accordance with this Agreement; and further provided that Agent may not
delegate its responsibilities with respect to (i) developing a comprehensive
accounting system and conducting internal audits under Section 2.07, (ii)
reviewing service contracts under Section 2.09, (iii) administering property
taxes under Section 2.10, (iv) performing construction management services under
Section 2.11 or (v) administering insurance and workplace safety procedures
under Section 5.01.

IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed and delivered, as of the day and year first above written.

"OWNER"

TRANSCONTINENTAL REALTY INVESTORS, INC.,
a Nevada corporation

By: /s/ RANDALL M. PAULSON
------------------------------------
Name: Randall M. Paulson
Title: President

Attest: /s/ CHERYL WEAVER
--------------------------------
Cheryl Weaver
Its: Assistant Secretary

19
<PAGE>

"MANAGER"

CARMEL REALTY SERVICES, LTD., a
Texas partnership
By Its General Partner
BASIC CAPITAL MANAGEMENT, INC.,
a Nevada corporation

By: /s/ THOMAS A. HOLLAND
-------------------------------------
Name: Thomas A. Holland
Title: Executive Vice President

Attest: /s/ CHERYL WEAVER
---------------------------------
Cheryl Weaver
Assistant Secretary

(CORPORATE SEAL)

20
<PAGE>

EXHIBIT "A"
02/01/98

TRANSCONTINENTAL REALTY INVESTORS, INC. RESIDENTIAL LISTING

NO. PROJECT ENTITY UNITS SQ. FT. METRO (CITY) ST ADDRESS ZIP CODE
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>

1. ARBOR POINT TRI 194 178,920 ODESSA TX 3843 PENBROOK ST. 79762
2. BENT TREE GARDENS TRI 204 ADDISON TX 16651 ADDISON ROAD 75248
3. CARSEKA TRI 54 34,359 LOS ANGELES CA 9816 EXPOSITION BLVD. 90034
4. COCHRAN TRI 63 42,625 LOS ANGELES CA 657 & 665 SOUTH COCHRAN 90036
5. COUNTRY BEND TRI 166 BENBROOK TX 5608 ROYAL LANE 76109
6. COVENTRY POINTE TRI 120 105,608 MIDLAND TX 3329 WEST WADLEY 79707
7. CRESCENT PLACE TRI 120 HOUSTON TX 10222 SOUTH GESSNER 77071
8. FAIR PARK PINES TRI 49 LOS ANGELES CA 2040 FAIR PARK AVENUE 90041
9. FOUNTAIN VILLAGE TRI 410 TUCSON AZ 1345 S. KOLB ROAD 85710
10. GLADSTELL FOREST TRI 168 CONROE TX 1000 GLADSTELL 77304
11. HARPER'S FERRY TRI 122 LAFAYETTE LA 326 GUILBEAU ROAD 70506
12. HERITAGE TRI 136 TULSA OK 4455 E. 31ST STREET 74135
13. INWOOD GREENS TRI-CITY 126 105,960 HOUSTON TX 5454 W. GULF BANK 77088
14. JUNCTION TRI 212 MIDLAND TX 1902 E. NORTH MIDLAND DR. 79707
15. LINCOLN COURT TRI 55 DALLAS TX 3838 RAWLINS 75219
16. MARINER'S POINTE TRI 368 310,494 ST. PETERSBURG FL 1175 PINELLAS POINT DR. S. 33705
17. MOUNTAIN PLAZA TRI 188 EL PASO TX 3334 ZION STREET 79904
18. OAKS OF INWOOD TRI-CITY 198 153,040 HOUSTON TX 5350 W. GULF BANK 77088
19. SANDSTONE TRI 238 MESA AZ 1727 W. EMILITA 85202

</TABLE>
21
<PAGE>

<TABLE>

20. SHADOW RUN TRI 276 LARGO FL 12001 BELCHER ROAD 34643
21. SOUTHGATE TRI 180 151,656 ODESSA TX 2735 EAST 8TH STREET 79762
22. SPA COVE TRI 303 ANNAPOLIS MD 1002 PRIMROSE ROAD 21403
23. SUMMERFIELD TRI 224 ORLANDO FL 4581 KIRKMAN ROAD 32811
24. SUMMERSTONE TRI 242 188,734 HOUSTON TX 9301 DAIRYVIEW LANE 77099
25. SUNCHASE TRI 300 ODESSA TX 2201 ROCKY LAND ROAD 79762
26. TERRACE HILL TRI 310 EL PASO TX 4111 WESTCITY COURT 79902
27. TIMBERS ON BROADWAY TRI 100 TYLER TX 2720 SOUTH BROADWAY 75701
28. TREEHOUSE TRI 160 153,072 IRVING TX 3203 WALNUT HILL LANE 75038
29. VILLA PIEDRA TRI 132 LOS ANGELES CA 4433 EAGLE ROCK BLVD. 90041
30. VILLAS AT COUNTRYSIDE TRI 102 STERLING VA 100 WESTWICK COURT, SUITE 1 20165
31. WESTGATE OF LAUREL TRI 218 LAUREL MD 8114 GORMAN AVENUE 20707
32. WESTWOOD SQUARE TRI 79 49,001 ODESSA TX 2950 PLEASANT AVENUE 79764
33. WOODLAND HILLS TRI 96 SAN ANTONIO TX 7110 WURZBACH ROAD 78240
34. WOODS EDGE TRI 162 ROCKVILLE MD 14002 COVE LANE 20851
</TABLE>

<PAGE>

EXHIBIT 10.8

Commercial

MANAGEMENT AGREEMENT

BETWEEN

TRANSCONTINENTAL REALTY INVESTORS, INC.
("OWNER")

AND

CARMEL REALTY SERVICES, LTD.
("MANAGER")

DATED AS OF FEBRUARY 1, 1998
<PAGE>

MANAGEMENT AGREEMENT

Recitals

Article I - Appointment; Term of Agreement
1.01 Appointment
1.02 Term
1.03 Termination For Cause

Article III - Bank Accounts
3.01 Operating Account
3.02 Security Deposits

Article IV - Budgets and Expenditures
4.01 Business Plan
4.02 Expenses Paid from Operating Account
4.03 Insufficient Income
4.04 Limitation on Payments

Article V - Indemnification and Insurance
5.01 Insurance
5.02 Certificates and Policies of Insurance
5.03 Owner's Liability Insurance
5.04 Manager's Responsibilities

Article VI - Compensation of Manager and Management Facilities
6.01 Manager's Fee

Article VII - Termination
7.01 Obligations Upon Termination
7.02 Remedies

2
<PAGE>

Signatures

Exhibit "A" - Property Description

3
<PAGE>

MANAGEMENT AGREEMENT

THIS MANAGEMENT AGREEMENT (the "Agreement") is made and entered into as
of the 1st day of February, 1998, by and TRANSCONTINENTAL REALTY INVESTORS,
INC., a Nevada corporation ("Owner"), and CARMEL REALTY SERVICES, LTD., a Texas
partnership ("Manager").

1.03 Termination For Cause. Owner, at its option, may terminate this
Agreement for "Cause" at any time upon giving written notice thereof and the
term "Cause" shall include (a) fraud, misrepresentation, misappropriation of
funds, furnishing any statement, report, notice, writing, or schedule to Owner
that Manager knows is untrue or misleading in any material respect on the date
as of which the facts set forth therein are stated or certified, or breach of
company by Manager, or (b) an intentional or grossly negligent or illegal act
committed by Manager against Owner.

ARTICLE II

RESPONSIBILITIES OF MANAGER

4
<PAGE>

(a) providing any necessary repairs to the Property and a
preventative maintenance program for all mechanical, electrical and
plumbing systems and equipment on the Property;

(b) contracting in the name of Owner for gas, electricity, water
and such other utility services to be furnished to the Property as
Manager deems appropriate;

(d) any other activity expedient to the operation of the Property.

2.03 Employees.

(a) All matters pertaining to the employment, supervision,
compensation, promotion and discharge of employees who are managing and
operating the Property are the responsibility of Manager, and Manager
shall be in all respects the employer of such employees.

(c) In the event that Manager's employees are engaged to work
in connection with other properties than the Property, wages and other
expenses with respect to such work shall be allocated between
properties, which allocations shall be subject to review by Owner.

5
<PAGE>

2.04 Enforcement of Leases.

(a) Manager shall use diligent efforts to enforce the terms of
all tenant leases and to collect all rents (including tenants'
obligations to pay a portion of operating expenses, taxes and common
area maintenance charges) and other charges which may become due at any
time from any tenant or from others for services provided in connection
with or for the use of the Property, or any portion thereof. All monies
so collected shall be deposited in the "Operating Account" (as that
term is defined in Section 3.01 herein).

(a) all lawsuits, condemnation proceedings, zoning or any other
governmental orders, notices, actions or threats that may adversely
affect the Property;

6
<PAGE>

(b) any major and material claim made by a tenant that Manager
or Owner has failed to perform any obligations of Owner or Manager
under any lease or agreement to which the Manager or Owner is a party;

(c) the occurrence of any fire or other casualty on or about
the Property or any other personal injury or property damage (such
notice to be in compliance with the requirements of all insurance
policies), and Manager shall permit insurance adjustors to view damages
before repairs are started except for emergency situations;

(d) any requirement of any insurance carrier or of any
governmental agency with respect to the Property;

(e) any material offers to purchase the Property; and

7
<PAGE>

2.08 Reports and Reconciliation of Accounts. On or before the fifteenth
(15th) day of each month during the Term or as otherwise directed by Owner,
Manager shall provide to Owner such reports pertaining to the Property as are
required by Owner in the form as specified in the Policy Manual.

2.09 Contracts.

8
<PAGE>

independent contractor to provide Owner with evidence of any insurance
Owner, in its reasonable judgment, deems that such independent
contractor should carry.

2.12 Construction Management. Manager shall advise Owner on performance
of construction, reconstruction and renovation work at the Property and, at the
request of Owner, shall act as construction manager with respect to such work.
Such service shall include, without limitation, coordination with the Owner and
Owner's architect of the planning of all work, obtaining of bids from trade
contractors, administration of all contracts and the performance thereof by
trade contractors and subcontractors and liaison with Owner, Owner's architect
and any tenants for whom work is being performed.

ARTICLE III

BANK ACCOUNTS

3.01 Operating Account. Manager shall deposit all rents and other funds
collected from the operation of the Property, including but not limited to any
and all advance funds in a special account

9
<PAGE>

(the "Operating Account") for the Property in the name of Owner in a federally
insured financial institution designated or approved by Owner. Manager and Owner
shall each be authorized signatories on the Operating Account. Out of the
Operating Account, Manager shall pay the operating expenses of the Property and
any other payments relative to the Property as permitted by the terms of this
Agreement. The balance in the Operating Account shall be transferred at such
times as may be designated by Owner to Manager in writing from time to time, to
an account of Owner at the financial institution designated by Owner.

ARTICLE IV

BUDGETS AND EXPENDITURES

4.01 Business Plan. Within twenty (20) days after the Commencement Date
with respect to the first calendar year of the Term, and no later than October
15th of each year during the Term with respect to any subsequent calendar years
(or at such other date as designated by Owner, but no more frequently than once
during each twelve month period), Manager shall prepare, in the form specified
in the Policy Manual, and submit to Owner for Owner's approval a Business Plan
(following Owner's approval, the "Approved Budgets") for the management and
operation of the Property and Building for the forthcoming twelve month period
which shall include an Operating Budget (following Owner's approval, the
"Approved Operating Budget") and a Capital Budget (following Owner's approval,
the "Approved Capital Budget"). Budget line items shall include:

(a) costs of the gross salary and compensation, or pro rata share
thereof, including, but not limited to, payroll taxes, insurance,
workers' compensation and other benefits, of any of Manager's staff
whose full-time, on-site duties involve the day to day operation or
management of the Property;

10
<PAGE>

(b) costs necessary for the management, operation, and maintenance
of the Property; and

4.02 Expenses Paid from Operating Account. All expenditures
contemplated to be paid from the Operating Account are limited to the extent
that such costs and expenses are authorized by this Agreement and in the
Approved Budgets then in effect.

4.03 Insufficient Income. If at any time the cash in the Operating
Account shall not be sufficient to pay the bills and charges which have been or
may be incurred with respect to the Property and which are payable from the
Operating Account, Manager shall notify Owner immediately upon first projection
or awareness of a cash shortage or pending cash shortage.

ARTICLE V

INSURANCE AND INDEMNIFICATION

5.01 Insurance. Manager shall recommend to Owner the insurance coverage
it considers appropriate for the Property. Upon approval by Owner, Manager shall
be responsible for the placement of all insurance, adjustment of any losses
covered by such insurance and the institution of appropriate safety procedures
at the Property which will minimize insurance claims to the extent possible.
Throughout the Term, Manager shall maintain in full force and effect the
following kinds of insurance covering its operations on the Property, in amounts
and with coverages satisfactory to Owner, (with the insurance described in (a)
below to be maintained at Owner's expense and the insurance described in (b),
(c), (d) and (e) below to be maintained at Manager's expense):

11
<PAGE>

(a) worker's compensation and employer's liability insurance,
covering only full time, on-site employees at the Property;

(c) comprehensive automobile liability insurance, when the
services to be performed require the use of a motor vehicle, with Owner
named as an additional insured;

(e) worker's compensation and employer's liability insurance
covering Manager's employees not included in the insurance described in
(a) above, with Owner named as an additional insured.

5.02 Certificates and Policies of Insurance.

(a) Certificates of the insurance coverages as described above
shall be delivered to Owner on or before the Commencement Date,
evidencing that such insurance is in force, together with copies of the
policies (certified as true, correct, and complete by the insurer) of
insurance to which such certificates refer. Within fifteen (15)
calendar days prior to expiration of any such insurance coverage, new
certificates shall be delivered, certified as aforesaid, evidencing
renewal of such insurance coverage.

(b) All certificates must contain waiver of subrogation clauses
and must provide that if such policies are canceled or changed during
the period of coverage as cited therein in such manner as to affect the
insurance coverage, written notice will be mailed to Owner and Manager
by registered or certified mail delivered at least thirty (30) calendar
days prior to such cancellation or change (and such certificates shall
include no language absolving the issuer thereof from liability for its
failure so to provide such notice).

12
<PAGE>

5.03 Owner's Liability Insurance. Owner agrees to carry comprehensive
general liability insurance and such other insurance as Owner may determine to
be necessary for the protection of the interests of Owner and Manager, the
carrier and the amount of coverage in each policy to be decided upon by Owner in
Owner's reasonable judgment, or Owner may elect to self-insure.

ARTICLE VI

COMPENSATION OF MANAGER

6.01 Management Fee.

13
<PAGE>

(b) "Gross Monthly Collections" shall mean the total gross
monthly collections received from the Property as a result of rental of
all or any portion of the Property, excluding, however, security
deposits, payment of money by a tenant or any other person or entity to
Owner or Manager in consideration for or in conjunction with a security
deposit, fire loss proceeds, any Special Services, condemnation
proceeds, proceeds received by Owner in connection with the sale of any
portion of the Property or personal property located upon the Property,
and the refinancing of any indebtedness secured by a lien on any
portion of the Property or otherwise related to the operation of the
Property.

ARTICLE VII

TERMINATION

7.01 Obligations Upon Termination. Upon termination for whatever cause,
Manager shall, not later than the effective date of termination of this
Agreement, deliver to Owner the original of all books, permits, plans, records,
leases, licenses, contracts and other documents pertaining to the Property and
their operation, all insurance policies, bills of sale or other documents
evidencing title or rights of Owner, and any and all records or documents,
whether or not enumerated herein, which are necessary or desirable for the
ownership and operation of the Property. Manager shall assign unexpired service
and supply contracts to Owner or parties designated by Owner. All personal
property (including, but not limited to, capital equipment, hardware, trade and
non-trade fixtures, materials and supplies) acquired pursuant to this Agreement,
whether paid for directly by Owner or by way of reimbursement to Manager, shall
become the property of Owner and shall remain at the Property after the
termination of this Agreement in accordance with its terms, unless Owner shall
request Manager to remove said property. The obligations set forth in this
paragraph shall be in addition to any and all other rights, liabilities and
obligations created under this Agreement and as provided by law.

14
<PAGE>

waived in writing by the Owner). The sole remedy of Manager in the event of
wrongful termination by Owner shall be to sue Owner for the loss of its
Management Fee during the applicable period. In no event shall Manager be
entitled to the recovery of special or consequential damages, nor shall Manager
be entitled to hold over at the Property after termination by Owner. Failure of
Manager to comply for any period with the provisions of Section 7.01 shall
render Manager liable to Owner for liquidated damages in the amount of three (3)
times the Management Fee which would have been payable to Manager during such
period had this Agreement not been terminated.

ARTICLE VIII

MISCELLANEOUS PROVISIONS

8.01 Headings. The headings used herein are for purposes of convenience
only and should not be used in construing the provisions hereof.

8.02 Notice. Any notice, demand or communication required or permitted
hereunder shall be given in writing and shall be deemed received (a) immediately
upon delivery in person; (b) three (3) days after being deposited in the U.S.
mail by certified mail, postage prepaid; or (c) the first business day after
being deposited with a recognized overnight courier service (which courier
services shall include, by way of illustration but not limitation, Federal
Express). Each such notice shall be addressed to the party to receive such
communication at the following address:

If to Owner:

Transcontinental Realty Investors, Inc.
10670 North Central Expressway
Suite 600
Dallas, Texas 75231
Attention: President

15
<PAGE>

If to Manager:

Carmel Realty Services, Ltd.
C/o Basic Capital Management, Inc.
10670 North Central Expressway
Suite 640
Dallas, Texas 75231
Attention: President

or other address as any party may hereafter designate by written notice to the
other parties hereto.

8.05 Assignment. Owner shall have the right, at any time and from time
to time, in its sole discretion, to assign its rights and obligations hereunder
to a third party acquiring the Property provided that any such third party
enters into a written agreement assuming Owner's obligations hereunder. Manager
may not assign its rights and obligations hereunder.

16
<PAGE>

reasonable attorneys' fees actually incurred, at prevailing hourly rates of the
attorney or law firm in question.

8.08 Time of the Essence. Time is of the essence of this Agreement.

8.09 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE WHERE THE PROPERTY IS LOCATED.

8.10 Severability. Every provision of this Agreement is intended to be
severable. If any term or provision hereof is illegal for any reason whatsoever,
such provision shall be severed from the Agreement and shall not affect the
validity of the remainder of this Agreement.

17
<PAGE>

attorneys' fees, in connection with the occurrence of any environmental hazard
on the Property (as listed above) resulting from its negligence.

8.16 Subordination. Manager shall not have any right or interest in the
Property nor any claim of lien with respect thereto. This Agreement and the
rights of Manager hereunder are and shall be subordinate to any deed to secure
debt, mortgage, deed of trust, security agreement, or other security instrument
now existing or hereafter made encumbering the Property and executed and
delivered by Owner to secure any indebtedness of Owner with respect to the
Property. Manager does hereby agree that this Agreement and all of the rights,
duties, and liabilities of Manager hereunder will be terminated as to the
Property if the holder of any such deed to secure debt, mortgage, deed of trust,
security agreement or other security instrument succeeds to all of the
beneficial right, title, and interest of Owner in and to the Property by virtue
of the appointment of a receiver, foreclosure, acceptance of a deed in lieu of
foreclosure, or otherwise.

18
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed and delivered, as of the day and year first above written.

"OWNER"

TRANSCONTINENTAL REALTY INVESTORS, INC.,
a Nevada corporation

By: /s/ RANDALL M. PAULSON
-------------------------------------
Name: Randall M. Paulson
Title: President

Attest: /s/ CHERYL WEAVER
---------------------------------
Cheryl Weaver
Its: Assistant Secretary

"MANAGER"

CARMEL REALTY SERVICES, LTD., a
Texas partnership
By Its General Partner
BASIC CAPITAL MANAGEMENT, INC.,
a Nevada corporation

By: /s/ THOMAS A. HOLLAND
-------------------------------------
Name: Thomas A. Holland
Title: Executive Vice President

Attest: /s/ CHERYL WEAVER
---------------------------------
Cheryl Weaver
Assistant Secretary

(CORPORATE SEAL)

19
<PAGE>

EXHIBIT 'A'

02/01/98

TRANSCONTINENTAL REALTY INVESTORS, INC. COMMERCIAL PROPERTY LISTING
<TABLE>
<CAPTION>
ZIP
NO. PROPERTY TYPE ENTITY METRO AREA (CITY) ST ADDRESS CODE
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
1. 74 NEW MONTGOMERY OFFICE TRI SAN FRANCISCO CA 74 NEW MONTGOMERY 94105
2. BONITA PLAZA OFFICE TRI BONITA CA 180 OTAY LAKES ROAD 91902
3. CHESAPEAKE RIDGE OFFICE TRI SAN DIEGO CA 5775 - 5788 ROSCOE COURT 92111
4. CORPORATE CENTER @ BEAUMEADE OFF/IND TRI WASH. D.C. (ASHBURN) VA 44633, 44645 Gilford/ 22011
22641 Beaumeade Cirle)
5. CORPORATE POINTE OFFICE BUILDING OFFICE TRI WASH. D.C. (CHANTILLY) VA 14110 PARK MEADOW DRIVE 22021
6. DENTON DRIVE WAREHOUSE IND TRI DALLAS TX 6320 DENTON DRIVE 75235
7. DUNES PLAZA LAND RETAIL TRI GARY (MICHIGAN CITY) IN 104 FRANKLIN ST. 46360
8. DUNES PAZA S/C RETAIL TRI GARY (MICHIGAN CITY) IN 104 FRANKLIN ST. 46360
9. ENCON WAREHOUSE IND TRI FORT WORTH TX 2900 W. SEMINARY STREET 76133
10. HARTFORD BUILDING OFFICE TRI DALLAS TX 400 N. ST. PAUL 75201
11. INSTITUTE PLACE OFFICE TRI CHICAGO IL 213 2. INSTITUTE PLACE 60610
12. KMART PLAZA - NC RETAIL TRI CARY NC 960 KILDRE FM ROAD 27511
13. KMART PLAZA - TX RETAIL TRI SAN ANGELO TX 3000 SHERWOOD WAY 76907
14. KMART PLAZA - WI RETAIL TRI SHEBOYGAN WI 2633 SOUTH BUSINESS DR. 53086
15. LEXINGTON CENTER OFFICE TRI COLORADO SPRINGS CO 3820 S. 30TH STREET 80904
16. NORTHTOWN MALL RETAIL TRI DALLAS TX 3131 FOREST LANE 75243
17. ONE STEEPLECHASE OFFICE TRI WASH. D.C. (DULES) VA 21736 ATLANTIC BLVD. 20166
18. PARKE-LONG COURT IND TRI WASH. D.C. (CHANTILLY) VA 14120 - 14141 PARKE LONG CT. 22021
19. PARKWAY CENTRE RETAIL TRI DALLAS TX 13450 - 15520 INWOOD ROAD 75234
20. PLAZA TOWER & COURTYARD OFFICE TRI TAMPA (ST. PETERSBURG) FL 111 SECOND AVE. N.E. 33701
</TABLE>

<PAGE>

<TABLE>
ZIP
NO. PROPERTY TYPE ENTITY METRO AREA (CITY) ST ADDRESS CODE
=========================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
21. SADLER SQUARE S/C RETAIL TRI JACKSONVILLE (Fernandina Beach) FL 2144 SADLER ROAD 32034
22. SAVINGS OF AMERICA OFFICE TRI HOUSTON TX 3003 SOUTH LOOP WEST 77054
23. SHAWS PLAZA RETAIL TRI BOSTON (SHARON) MA 700 S. MAIN ST. 2067
24. TECHNOLOGY TRADING PARK OFF/IND TRI WASH. D.C. (STERLING) VA 403 & 405 GLENN DRIVE 20164
25. TEXSTAR WAREHOUSE IND TRI FORT WORTH (GRAND PRAIRIE) TX 802 AVE. J EAST 75053
26. TOWN & COUNTRY OFFICE TRI HOUSTON TX 1729 & 1737 STEBBINS DR. 77043
27. TRICON-2086 GEN. TRUMAN ST IND TRI ATLANTA GA 2086 GEN. TRUMAN ST. 30318
28. TRICON-1660 CHATTAHOOCHEE IND TRI ATLANTA GA 1660 CHATTAHOOCHEE 30318
29. TRICON-1730 MacARTHUR BLVD IND TRI ATLANTA GA 1730 MacARTHUR BLVD. 30318
30 TRICON-1785 MacARTHUR BLVD IND TRI ATLANTA GA 1785 MacARTHUR BLVD. 30318
31. TRICON-3400 OAKCLIFF RD IND TRI ATLANTA GA 3400 OAKCLIFF RD. 30340
32. TRICON-3793 N. PEACHTREE IND TRI ATLANTA GA 3793 N. PEACHTREE 30341
33. TRICON-4215 WENDELL DR IND TRI ATLANTA GA 4215 WENDELL DR. 30336
34. TRICON-4705-25 BAKERS FERRY RD IND TRI ATLANTA GA 4705-25 BAKERS FERRY RD. 30336
35. VENTURE CENTER OFFICE TRI ATLANTA GA 1605 CHANTILLY DRIVE 30324
36. WATERSTREET OFFICE TRI BOULDER CO 2425-2595 CANYON BLVD. 80302
37. WESTEND PARKING LOT PKG LOT TRI DALLAS TX ROSS @ RECORD ST., #4498 75201
</TABLE>
21

<PAGE>

EXHIBIT 23.1

Consent of Independent Certified Public Accountants

Transcontinental Realty Investors, Inc.
Dallas, Texas

We hereby consent to the incorporation by reference in the Joint Proxy
Statement/Prospectus constituting a part of this Registration Statement of our
report dated March 12, 1998, relating to the consolidated financial statements
and schedules of Transcontinental Realty Investors, Inc. appearing in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.

We also consent to the reference to us under the caption "Experts" in the
Prospectus.

/s/ BDO Seidman, LLP
-------------------------
BDO Seidman, LLP

Dallas, Texas
January 13, 1999

<PAGE>

EXHIBIT 23.2

Consent of Independent Certified Public Accountants

Transcontinental Realty Investors, Inc.
Dallas, Texas

We hereby consent to the incorporation by reference in the Joint Proxy
Statement/Prospectus constituting a part of this Registration Statement of our
report dated March 6, 1998, relating to the consolidated financial statements
and schedules of Continental Mortgage and Equity Trust appearing in the Trust's
Annual Report on Form 10-K for the year ended December 31, 1997.

We also consent to the reference to us under the caption "Experts" in the
Prospectus.

/s/ BDO SEIDMAN, LLP
-------------------------
BDO Seidman, LLP

Dallas, Texas
January 13, 1999

<PAGE>

EXHIBIT 23.3
[LETTERHEAD OF FARMER, FUQUA, HUNT & MUNSELLE, P.C.]

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in this Registration Statement of
Transcontinental Realty Investors, Inc. on Form S-4 of (1.) our reports dated
July 23, 1998, May 21, 1998, July 24, 1998, June 26, 1998, and June 26, 1998 on
the statements of revenues and direct operating expenses of Mountain Plaza
Apartments, Parkway North, Plaza on Bachman Creek, The 4400 Apartments, and
Ashton Way Apartments, respectively, all for the year ended December 31, 1997
appearing in the Form 8-K/A of Transcontinental Realty Investors, Inc. dated May
29, 1998; (2.) our report dated July 14, 1998 on the statement of revenues and
direct operating expenses of Valley Rim for the year ended December 31, 1997
appearing in the Form 8-K/A of Transcontinental Realty Investors, Inc. dated
June 26, 1998; (3.) our report dated October 30, 1998 on the statement of
revenues and direct operating expenses of The Cliffs of Eldorado for the nine
months ended December 31, 1997 appearing in the Form 8-K of Transcontinental
Realty Investors, Inc. dated October 20, 1998; and (4.) our reports dated
January 21, 1998, January 20, 1998 and April 15, 1998 on the statements of
revenues and direct operating expenses of 1010 Commons, 225 Baronne, and
Fontenelle Hills Apartments, respectively, all for the year ended December 31,
1997 appearing in the Form 8-K of Continental Mortgage and Equity Trust dated
April 3, 1998.

/s/ Farmer, Fuqua, Hunt & Munselle, P.C.

FARMER, FUQUA, HUNT & MUNSELLE, P.C.
Dallas, Texas
January 11, 1999

<PAGE>

EXHIBIT 99.1

PROXY

TRANSCONTINENTAL REALTY INVESTORS, INC.

Proxy for the Special Meeting of Shareholders to be Held _____________, 1999

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints Randall M. Paulson as attorney-in-fact and
proxy with full power of substitution to represent the undersigned and to vote
all of the undersigned's Shares of Common Stock in the Company at the Special
Meeting of Shareholders to be held at Transcontinental Realty Investors, Inc.,
10670 North Central Expressway, Suite 300, Dallas, Texas at 11:00 in the morning
on ____________, 1999 and at any adjournment or postponement thereof. Said
attorney-in-fact and proxy is instructed to vote as designated on the reverse
side.

The undersigned acknowledges receipt of the Notice of Special Meeting of
Shareholders and the accompanying proxy statement.

- ----------- -----------
SEE REVERSE SEE REVERSE
SIDE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
- ----------- -----------
<PAGE>

Please mark
[X] votes as in
this example.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF THE
COMPANY VOTE "FOR" THE MERGER AT THE SPECIAL MEETING.

The attorney-in-fact and proxy
shall vote the undersigned shares
as specified thereon or, where no
choice is indicated, the under- 1. Approving the Merger as described in
signed's vote will be cast FOR the accompanying proxy statement.
---
each of the matters hereon. FOR AGAINST ABSTAIN
[ ] [ ] [ ]

2. In their judgment upon such other
matters as may properly come before
NOTE: PLEASE COMPLETE, SIGN AND the meeting, including any proposal
DATE THIS PROXY AND MAIL TO US to adjourn or postpone such meeting.
PROMPTLY IN THE ACCOMPANYING
POSTAGE-PAID ENVELOPE OR SEND THE FAILURE OF THE COMPANY SHARE-
THE PROXY CARD VIA FACSIMILE TO, HOLDERS TO APPROVE THE MERGER WILL
(718) 236-4588 RESULT IN THE MERGER NOT OCCURRING.
- ----------------------------,
ATTENTION: RANDALL M. PAULSON MARK HERE FOR ADDRESS [ ]
CHANGE AND NOTE AT LEFT

Please sign exactly as name appears
hereon and date. Where shares are
held jointly, both holders should
sign. When signing as attorney,
executor, administrator, trustee
or guardian, please sign full title
as such.

Signature________________ Date _____ Signature ________________ Date ______

<PAGE>

EXHIBIT 99.2

PROXY

CONTINENTAL MORTGAGE AND EQUITY TRUST

Proxy for the Special Meeting of Shareholders to be Held on ___________, 1999

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES

The undersigned hereby appoints Randall M. Paulson as attorney-in-fact and proxy
with full power of substitution to represent the undersigned and to vote all of
the undersigned's Shares of Beneficial Interest in the Trust at the Special
Meeting of Shareholders to be held at Continental Mortgage and Realty Trust,
10670 North Central Expressway, Suite 300, Dallas, Texas at 11:00 in the morning
on __________, 1999 and at any adjournment or postponement thereof. Said
attorney-in-fact and proxy is instructed to vote as designated on the reverse
side.

The undersigned acknowledges receipt of the Notice of Special Meeting of
Shareholders and the accompanying proxy statement.

- ------------- -------------
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
- ------------- -------------

<PAGE>

<TABLE>
<S> <C>
[X] Please mark
votes as in
this example.

THE TRUSTEES OF THE TRUST UNANIMOUSLY RECOMMEND THAT THE SHAREHOLDERS OF THE TRUST VOTE "FOR" THE
INCORPORATION PROCEDURE AT THE SPECIAL MEETING.

The attorney-in-fact and proxy shall vote the undersigned's 1. Approving the Incorporation FOR AGAINST ABSTAIN
shares as specified herein or, where no choice is indicated, Procedure as described in [ ] [ ] [ ]
the undersigned's vote will be cast FOR the matter described. the accompanying proxy
--- statement.

NOTE: PLEASE COMLETE, SIGN AND DATE THIS PROXY AND MAIL TO 2. In their judgment upon such other matters as may
US PROMPTLY IN THE ACCOMPANYING POSTAGE-PAID ENVELOPE OR properly come before the meeting, including any
SEND THE PROXY CARD VIA FACSIMILE TO (718) 236-4588 proposal to adjourn or postpone such meeting.
---------------------
ATTENTION: RANDALL M. PAULSON.

THE INCORPORATION PROCEDURE MUST BE APPROVED BY THE
TRUST SHAREHOLDERS FOR THE INCORPORATION PROCEDURE TO
OCCUR.

MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]

Please sign exactly as name appears hereon and date.
Where shares are filed jointly, both holders should sign.
When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such.

Signature: Date: Signature: Date:
----------------------------- ----------------- ---------------------------- -----------------
</TABLE>